<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 13, 1998
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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TELEHUB COMMUNICATIONS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
NEVADA 4813,4899 36-413-6730
(Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation) Classification Code Number) Identification Number)
</TABLE>
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RICHARD M. HARMON, CHIEF FINANCIAL OFFICER
TELEHUB COMMUNICATIONS CORPORATION
1375 TRI-STATE PARKWAY, SUITE 250
GURNEE, ILLINOIS 60031
1-(800)-TELEHUB
(Address, including zip code, & telephone number, of Registrant's principal
executive offices)
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WITH COPIES TO:
<TABLE>
<S> <C>
MICHAEL L. GLASER, ESQ. JANET C. ALLEN, ESQ., GENERAL COUNSEL
K. HARSHA KRISHNAN, ESQ. TELEHUB COMMUNICATIONS CORPORATION
HALIGMAN LOTTNER RUBIN & FISHMAN, P.C. DBA PACIFIC TELEHUB COMMUNICATIONS CORPORATION
633 17TH STREET, SUITE 2700 2033 NORTH MAIN STREET, SUITE 340
DENVER, COLORADO 80202 WALNUT CREEK, CALIFORNIA 94596
(303) 292-1200 (925) 295-1140
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
CLASS OF SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE(1) FEE
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<S> <C> <C> <C> <C>
13.875% Senior Discount Notes due
2005, Series B................. $125,000,000 -- $83,533,750 $24,643
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</TABLE>
(1) Pursuant to Rule 457(f), the registration fee has been estimated based on
the book value of the securities to be received by Registrant in exchange
for the securities to be issued in the Exchange Offer described herein.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED AUGUST , 1998
PROSPECTUS
TELEHUB COMMUNICATIONS CORPORATION
OFFER TO EXCHANGE
ALL OUTSTANDING 13.875% SENIOR NOTES DUE 2005 ("OLD NOTES")
FOR 13.875% SENIOR NOTES DUE 2005 ("NEW NOTES")
---------------------
THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1998, UNLESS EXTENDED.
---------------------
TeleHub Communications Corporation, a Nevada corporation (the "Issuer"),
hereby offers (the "Exchange Offer"), upon the terms and conditions set forth in
this Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal") to exchange up to $125,000,000 aggregate principal amount of its
13.875% Senior Notes Due 2005 (the "Series B Notes" or "New Notes") for an equal
principal amount of the issued and outstanding 13.875% Senior Notes Due 2005
(the "Series A Notes" or "Old Notes"), of which an aggregate of $125,000,000 in
principal amount remains outstanding on the date of this Prospectus. THIS
PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION.
HOLDERS OF OLD NOTES ARE URGED TO READ THIS PROSPECTUS AND THE RELATED LETTER OF
TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR OLD NOTES PURSUANT
TO THE EXCHANGE OFFER.
The Old Notes were originally issued and sold (the "Initial Note Offering")
to BancBoston Securities, Inc. (the "Initial Purchaser") pursuant to a Purchase
Agreement dated July 30, 1998 (the "Note Purchase Agreement"), among the Issuer
and the Initial Purchaser, pursuant to which the Issuer sold 125,000 Units
consisting of the Old Notes and warrants to purchase 16.662 Issuer common shares
per Unit. The Initial Purchaser subsequently resold the Old Notes in reliance on
Rule 144A of the Securities Act. The Issuer and the Initial Purchaser also
entered into a Registration Rights Agreement, dated July 30, 1998 (the "Note
Registration Rights Agreement"), pursuant to which the Issuer granted certain
registration rights for the benefit of the holders of the Old Notes. This
Exchange Offer satisfies certain Issuer obligations under the Note Registration
Rights Agreement. The New Notes will be obligations of the Issuer evidencing the
same indebtedness as the Old Notes and will be issued under and entitled to the
benefits of the Indenture, dated as of July 30, 1998 (the "Indenture"), between
the Issuer and State Street Bank, as trustee (in such capacity, the "Trustee").
The form and terms of the New Notes are identical in all material respects to
the Old Notes, except that the offer and exchange of the New Notes will not be
subject to certain transfer restrictions and registration rights provisions
applicable to the Old Notes. See "The Exchange Offer -- Purpose and Effect."
The form and terms of the New Notes will be the same as the form and terms
of the Old Notes except that the New Notes will not bear transfer restriction
legends. The New Notes will be obligations of the Issuer, guaranteed by Issuer's
subsidiaries (the "Subsidiaries") entitled to the benefits of the Indenture,
dated as of July 30, 1998 (the "Indenture"), relating to the Old Notes and the
New Notes (collectively, "Notes"). See "Description of the Notes." Following the
completion of the Exchange Offer, none of the Old Notes will be entitled to any
rights under the Note Registration Rights Agreement, including, but not limited
to, any contingent increase in the interest rate. See "The Exchange Offer".
PROSPECTIVE INVESTORS SHOULD CONSIDER THE "RISK FACTORS" DISCUSSION,
BEGINNING ON PAGE 10, FOR A DESCRIPTION OF CERTAIN SIGNIFICANT RISKS RELEVANT TO
AN INVESTMENT IN THE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOT HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
The date of this Prospectus is August , 1998
<PAGE> 3
The Issuer will accept for exchange any and all Old Notes which are
properly tendered in the Exchange Offer and not withdrawn on or prior to 5:00
p.m., New York City time, on , 1998, unless the Exchange Offer is
extended by the Issuer (the "Expiration Date"). Tenders of Old Notes may be
withdrawn at any time before 5:00 p.m., New York City time, on the Expiration
Date. The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered for exchange. However, the Exchange Offer is subject to
certain customary conditions which may be waived by the Issuer. The Issuer
agreed to pay the expenses of the Exchange Offer. See "The Exchange Offer."
Issuer will not receive cash proceeds from the Exchange Offer. See "Use of
Proceeds."
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See "The Exchange Offer -- Resales
of the New Notes" and "Plan of Distribution." The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Issuer has agreed
that, starting on the Expiration Date and ending on the close of business on the
180th day following the Expiration Date, it will make this Prospectus available
to any broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
The New Notes will mature on July 31, 2005. Cash interest on the New Notes
will not accrue on the Notes prior to July 31, 2001. The Notes will accrete at a
rate of 13.875%, compounded semi-annually to an aggregate principal amount of
$125.0 million by July 31, 2001. Thereafter, interest on the New Notes will be
payable semi-annually on January 31 and July 31 of each year commencing January
31, 2002. The New Notes will be redeemable at the option of the Issuer, in whole
or in part, at any time on or after July 31, 2002, at the redemption prices set
forth herein, plus accrued and unpaid interest and liquidated damages, if any,
to the date of redemption. See "Description of the New Notes -- Redemption."
The Notes are senior unsecured obligations of the Issuer, ranking pari
passu in right of payment with all existing and future unsecured and
unsubordinated indebtedness of the Issuer and senior in right of payment to all
existing and future subordinated indebtedness of the Issuer. The Notes are
effectively subordinated to all indebtedness of the Issuer to the extent of the
value of the assets securing such indebtedness and to all indebtedness of
subsidiaries of the Issuer. As of March 31, 1998, on a pro forma basis after
giving effect to the Initial Note Offering, holders of Notes would have been
effectively subordinated in right of payment to approximately $12.2 million of
outstanding secured long-term indebtedness.
The Issuer is making the Exchange Offer in reliance on the position of the
Staff of the Securities and Exchange Commission (the "Commission") as set forth
in certain interpretive letters issued to third parties in other transactions.
However, the Issuer has not sought its own interpretive letter, and there can be
no assurance that the Commission would make a similar determination with respect
to the Exchange Offer. Based on the Commission's interpretations, the Issuer
believes that New Notes issued pursuant to the Exchange Offer to any holder of
Old Notes in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by such holder (other than a broker-dealer who purchased
Old Notes directly from the Issuer for resale pursuant to Rule 144A under the
Securities Act or any other available exemption under the Securities Act)
without further compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such holder is not an
"affiliate" of the Issuer (within the meaning of Rule 405 under the Securities
Act), is acquiring the New Notes in the ordinary course of business and is not
participating, and has no arrangement or understanding with any person to
participate, in the distribution of the New Notes. Holders wishing to accept the
Exchange Offer must represent to the Issuer that such conditions have been met.
In addition, if such holder is not a broker-dealer, it must represent that it is
not engaged in, and does not intend to engage in, a distribution of the New
Notes. Each broker-dealer that receives New Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-dealer
as a result of a market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. See "The Exchange Offer --
i
<PAGE> 4
Resales of the New Notes" and "Plan of Distribution." This Prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired by such broker-dealer as a result of market-making
or other trading activities.
There has previously been only a limited secondary market, and no public
market, for the Old Notes. The Old Notes are eligible for trading in the Private
Offering, Resales and Trading through Automatic Linkages ("PORTAL") market. In
addition, the Initial Purchaser has advised the Issuer that it currently intends
to make a market in the New Notes; however, the Initial Purchaser is not
obligated to do so and any market making activities may be discontinued by the
Initial Purchaser at any time. Therefore, there can be no assurance that an
active market for the New Notes will develop. If such a trading market develops
for the New Notes, future trading prices will depend on many factors, including,
among other things, prevailing interest rates, the Issuer's results of
operations and the market for similar securities. Depending on such factors, the
New Notes may trade at a discount from their face value. See "Risk
Factors -- Lack of Public Market."
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding and will be entitled to all the same rights and will be subject to
the same limitations applicable thereto under the Indenture (except for those
rights which terminate upon consummation of the Exchange Offer). Following
consummation of the Exchange Offer, the holders of the Old Notes will continue
to be subject to existing restrictions upon transfer thereof and the Issuer will
have no further obligation to such holders (other than to the Initial Purchaser
under certain limited circumstances) concerning registration of the Old Notes
under the Securities Act. To the extent that Old Notes are tendered and accepted
in the Exchange Offer, a holder's ability to sell untendered Old Notes could be
adversely affected. See "Risk Factors -- Consequences of Failure to Exchange."
THE EXCHANGE OFFER ARE NOT BEING MADE TO, NOR WILL THE ISSUER ACCEPT
TENDERS FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH THE EXCHANGE
OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES
OR BLUE SKY LAWS OF SUCH JURISDICTION.
The Old Notes were each issued originally in global form (the "Global
Series A Notes"). The Global Series A Notes, were deposited with, or on behalf
of, The Depository Trust Company ("DTC"), as the initial depository with respect
to the Old Notes (in such capacity, the "Depository"). The Global Series A Notes
are registered in the name of Cede & Co. ("Cede"), as DTC's nominee, and
beneficial interests in the Global Series A Notes are shown on, and transfers
effected only through, records maintained by the Depository and its
participants. The use of the Global Series A Notes to represent certain of the
Old Notes permits the Depository's participant, and anyone holding a beneficial
interest in an Old Note registered in the name of such a participant, to
transfer interests in the Old Notes electronically in accordance with the
Depository's established procedures without transferring a physical certificate.
New Notes issued in exchange for the Global Series A Notes will also be issued
initially as a note in global form (the "Global New Notes," and, together with
the Global Series A Notes, the "Global Notes") and deposited with, or on behalf
of, the Depository. After the initial issuance of the Global New Notes, New
Notes in certificated form will be issued in exchange for a holder's
proportionate interest in the appropriate Global New Notes only as set forth in
the Indenture.
FORWARD-LOOKING STATEMENTS. Certain statements under the caption "Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and elsewhere in this Prospectus constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things, the
Company's limited operating history and uncertainty as to the Company's future
profitability; uncertainty as to the Company's ability to meet business targets
and budgets and to develop and implement operational, sales and marketing
ii
<PAGE> 5
and financial systems to manage rapidly growing operations; competition from
other participants in the highly competitive telecommunications industry;
uncertainty as to the Company's ability to obtain financing on acceptable terms
to finance its business strategy; uncertainty as to the Company's ability to
obtain and protect intellectual property rights or to develop proprietary
products that will receive intellectual property protection; the possibility
that technological developments may adversely affect the commercial viability of
VASP(TM) (as defined) and the Company's other products; and unanticipated
regulatory changes that may change the competitive environment to the Company's
detriment.
iii
<PAGE> 6
SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
Unless the context suggests otherwise, references in this Prospectus to
"TeleHub" or the "Company" mean TeleHub Communications Corporation and its
subsidiaries. See "Glossary" for the definition of certain terms used in this
Prospectus.
THE COMPANY
TeleHub believes it has the only universal Asynchronous Transfer Mode
("ATM")-based telecommunications network in commercial operation that is capable
of seamlessly interconnecting with the Public Switched Telephone Network
("PSTN"). The Company's first-to-market proprietary software, Virtual Access
Services Platform ("VASP(TM)"), will enable telecommunications service providers
to (i) integrate the delivery of voice, video and data over a single platform;
(ii) seamlessly interconnect with the PSTN; (iii) provide real-time monitoring
of telecommunications traffic; and (iv) facilitate the unbundling of the local
loop. The Company's VASP(TM)-managed ATM network, which began carrying
commercial traffic in December 1997, acts as a "proof of concept" for VASP(TM)
and generates revenues to support the Company's growth.
The Company believes the VASP(TM) platform addresses significant needs
throughout the telecommunications industry for improved systems and less
reliance on legacy hardware. While the legacy network evolved principally for
voice transmission, demand for data, video and advanced voice services has grown
rapidly over the past ten years. The legacy network, designed to handle the
lower bandwidth requirements of voice traffic, has inherent service and cost
inefficiencies when carrying data and video transmissions. In addition, recent
regulatory changes have introduced competition in both local and long distance
telephone services, including the unbundling of the local loop. To be
competitive in this new environment and to meet growing demand for high speed
data and video transmission services, telecommunications carriers are seeking to
enter new markets rapidly and to introduce differentiated services in a
cost-effective manner. Three major carriers, Sprint Corp. ("Sprint"), AT&T
Corporation ("AT&T") and Bell Atlantic Corp. ("Bell Atlantic"), have recently
announced plans to deploy, over the next two years, voice-over-ATM services that
will interconnect with the PSTN, a service which TeleHub already offers. In
addition, original equipment manufacturers ("OEMs") such as Lucent Technologies
Inc. ("Lucent") and Northern Telecommunications Ltd. ("Nortel") have recently
announced major acquisitions attempting to provide network solutions needed for
transporting carrier-class voice transmissions over more efficient data
networks. The Company believes that its VASP(TM) technology provides Incumbent
Local Exchange Carriers ("ILECs"), Competitive Local Exchange Carriers
("CLECs"), Interexchange Carriers ("IXCs") and OEMs with the ability to
accelerate the introduction of new products and services, to reduce costs and to
enter new markets rapidly.
TeleHub operates two principal subsidiaries: TeleHub Technologies
Corporation ("TTC"), which develops the commercial applications of VASP(TM), and
TeleHub Network Services Corporation ("TNS"), which operates the Company's ATM
network. TTC is marketing VASP(TM)-based voice and data products to potential
customers in the OEM segment, like Newbridge Networks Corporation ("Newbridge"),
Nortel and Cisco Systems, Inc. ("Cisco"), as well as in the carrier market,
including ILECs, CLECs and IXCs. The ability to carry voice quality
transmissions over an ATM backbone, and VASP(TM)'s ability to offer toll and
certain central office switching capabilities on a software basis, open the
multi-billion dollar voice switch market to ATM switch manufacturers. For
example, Newbridge has purchased a "right-to-use" license for a trial system of
VASP(TM) for $5.0 million. In addition, pilot programs for a VASP(TM)-based
virtual local exchange network are expected to commence with two North American
CLECs. Moreover, with future enhancements, the Company expects VASP(TM) to allow
Local Exchange Carriers ("LECs") to unbundle the local loop and offer Local
Number Portability ("LNP") using existing facilities, while protecting LECs'
proprietary customer databases, an issue which management believes has
significantly delayed the implementation of local exchange competition.
TNS, which utilizes VASP(TM) technology, currently offers wholesale long
distance services to the switchless reseller market. Because of the inherent
efficiencies in carrying voice traffic over an ATM backbone
1
<PAGE> 7
and VASP(TM)'s ability to seamlessly interconnect that traffic into the PSTN,
TNS is able to offer switched wholesale voice services at rates generally lower
than those currently offered by competing wholesale service providers. As a
result, TeleHub's wholesale customer base has been expanding and, as of July 15,
1998, includes seventeen switchless resellers. The Company estimates that these
reseller customers will transition approximately one million presubscribed long
distance lines onto TNS's network during 1999. TNS also expects to offer
wholesale long distance services to ILECs, CLECs, Independent Telephone
Companies ("ITCs") and international carriers terminating traffic in the United
States. TeleHub's network, interconnected via leased lines from WorldCom, Inc.
("WorldCom"), reaches approximately 64% of the telephone exchanges in the United
States directly and the remaining 36% through contractual relationships with
other carriers.
Management believes that the integration of the VASP(TM) technology on an
ATM backbone provides the following competitive advantages:
- The Company believes that TeleHub's VASP(TM)-enhanced network is the only
publicly-switched ATM network in commercial operation which allows for
seamless interconnection with the PSTN without requiring additional
telephone equipment or modified dialing procedures. A VASP(TM)-enhanced
ATM network allows for increased capacity and efficiencies, thereby
lowering costs as compared to networks utilizing legacy technologies.
- When fully deployed, VASP(TM) will allow for dynamic bandwidth
allocation. VASP(TM) will enable TeleHub to replace a customer's fixed
leased-line data network with one which (i) is variable, where the
customer only pays for capacity used, and (ii) can be publicly switched,
and therefore connected nearly anywhere in the United States, which
management believes is an improvement over competitors' existing service
offerings.
- VASP(TM) enables certain call-processing instructions to be moved out of
the LECs' central office, thereby reducing the traditional dependence on
the local exchange switch. The synergy between an ATM-based network and
VASP(TM) enables the delivery of expanded telecommunications services on
a virtual basis without the need for an extensive switching network.
- VASP(TM) provides real-time monitoring of telecommunications traffic, a
feature which the Company believes no other carrier offers. VASP(TM)
allows real-time access to billing information and customer calling
patterns and also provides for electronic order entry and trouble
ticketing. Management believes these capabilities reduce network
downtime, provisioning delays, maintenance costs and operating expenses,
and improve customer service.
- VASP(TM)'s distinct data analysis capabilities and open architecture will
enable carriers to develop and implement new products and services, such
as millisecond billing. The open architecture design of the VASP(TM)
software allows carriers to program and deploy these new services more
quickly than legacy systems, which are dependent on time-consuming
hardware vendor modifications.
THE TELEHUB SOLUTION
TeleHub was formed to capitalize on the demand for advanced network
features and capabilities resulting from the telecommunications industry's
changing competitive and regulatory environment. Existing carriers must develop
new Operational Support Systems ("OSS") that are interoperable with their legacy
systems, not only to support initiatives like LNP and the unbundling
requirements of the Telecommunications Act of 1996 and the regulations
promulgated thereunder (collectively, the "Telecommunications Act"), but also to
enable carriers to respond to increasing competitive challenges.
VASP(TM) addresses several shortcomings of legacy networks including: (i)
the inability to switch packet-and cell-based traffic into the PSTN; (ii) the
lack of real-time management, billing and monitoring capabilities; (iii) the
inflexibility of hardware-based network architectures; and (iv) the lack of
integrated OSS capabilities. VASP(TM) creates virtual switching capabilities,
permits real-time network supervision and facilitates the introduction of new
service offerings. When fully deployed, VASP(TM) will integrate voice, video and
data on a single switched network and enable the provisioning of
bandwidth-on-demand services.
2
<PAGE> 8
Key benefits of the Company's solution include:
New Market Opportunities. VASP(TM) allows customers to overcome some of the
traditional barriers to entry in the telecommunication services market such as
hardware limitations and the high cost of facilities. Management expects
VASP(TM)-enhanced carriers to be able to enter the local, long distance, voice,
video and data transmission markets using one integrated network. Utilizing
TeleHub's ATM network, switchless resellers soon will be able to offer video and
data services in addition to their customary voice services. Similarly, by
incorporating VASP(TM) into their products, ATM switch manufacturers can enter
the voice switch market.
Flexible and Scalable Architecture. VASP(TM) is a software solution in
contrast to the hardware-based configuration of legacy networks. The Company
believes that VASP(TM)'s open architecture and integrated OSS capabilities can
be adapted to most existing vendor hardware and are easily and readily scalable,
so that carriers, both small and large, can quickly and inexpensively develop
and implement new products and services. Existing switching platforms do not
have this flexibility and often require costly and time consuming hardware
modifications to add or change services.
Rapid Market Entry and Cost Avoidance. Management believes that VASP(TM)
offers the capabilities of a facilities-based network on a virtual basis and
therefore will allow carriers to enter markets quickly and avoid the time and
expense associated with procuring and installing costly central office, tandem
and distribution facilities. Also, OEMs could readily adapt their existing
products for multiple markets rather than incur significant expense to develop
separate products for each market.
Improved Time-to-Market for New Products and Services. Historically, new
product and service offerings required extensive testing to insure compatibility
with existing network configurations. VASP(TM) allows such testing to be
completed in less time than with legacy-based systems and allows new products
and services to be rolled out electronically to the entire network from one
central location.
Improved Network Management. VASP(TM) allows real-time access to billing
information and customer calling patterns, and also provides for electronic
order entry and trouble ticketing. With real-time supervision of network
activity, VASP(TM)-managed networks can monitor customer traffic and the
specific network elements involved in carrying a particular call while the call
is in-process. Such networks can also recover from line errors, transmission
faults and even catastrophic failures much more quickly than legacy systems
allow currently. Network maintenance and repair personnel can use this data to
build more efficient routing and restoration functions. These capabilities
should reduce network downtime, provisioning delays, maintenance costs and
operating expenses, as well as enable carriers to improve the quality of their
services and to offer more responsive customer care.
Increased Revenue from Existing Customers. VASP(TM)-equipped carriers are
able to store, maintain and access relevant information about customers and
their calling patterns on-line. The Company believes that such real-time market
research could be harnessed to generate additional revenues or identify new
marketing opportunities.
Increased Value to Resellers. VASP(TM) enhances the competitive position of
resellers. TNS offers voice-over-ATM services at rates generally lower than
traditional circuit-based voice rates or other point-to-point advanced voice
services. TNS's reseller customers will also soon be able to expand their
service offerings to include video and data services without the need to procure
high cost private data networks. With bandwidth-on-demand pricing, end-user
customers are charged only for actual bandwidth used, which makes video and data
services affordable for small end-user customers (a reseller's principal
market). Using VASP(TM)'s advanced information management capabilities, TNS can
electronically provision new customers and diagnose delays much more quickly
than legacy systems, so new customers can quickly start generating revenue for
the reseller.
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<PAGE> 9
BUSINESS STRATEGY
The Company's objective is to become a leading provider of next generation
services and software solutions to the telecommunications industry. Key elements
of the Company's strategy include:
Leverage its First-to-Market Advantage. The Company will continue
leveraging its proprietary technology to influence industry standards, build
market share quickly and develop innovative packaging and pricing plans.
Build Market Share on the TNS Network. The Company will continue to build
TNS's customer base by leveraging the competitive advantages of its
VASP(TM)-managed ATM network. TNS expects to continue offering its enhanced
services at rates generally lower than competing carriers while also providing
superior services, including real-time access to billing and customer
information, electronic provisioning and trouble ticketing, and soon, the
ability to offer switched video and data services.
Expand Strategic Alliances. The Company will continue to enhance its joint
marketing and technology development efforts through strategic alliances with
leading equipment manufacturers and carriers. The Company has formed strategic
alliances with manufacturers, such as Newbridge, to assist the Company in
introducing its VASP(TM) technology into the next generation of
telecommunications equipment. In addition, the Company has formed a strategic
relationship with Comdisco, Inc. ("Comdisco"), a network services provider, to
accelerate entry into targeted corporate markets and to stimulate growth of the
Company's customer base. The Company continues to pursue additional
relationships with other telecommunications industry participants.
Operate and Enhance the Next Generation Platform. The Company will continue
to enhance VASP(TM) to offer a broader range of products and services to
carriers and OEMs. Further enhancements of VASP(TM) are also directed toward the
continued integration of the Company's long distance ATM network with the local
services market. Because TNS is currently utilizing VASP(TM), potential TTC
customers can witness the benefits of a VASP(TM)-based platform in operation, as
well as utilize the TNS network for developing and testing new products.
Attract Experienced Management. The Company will continue to attract highly
qualified individuals with proven expertise from various segments of the
telecommunications and related industries. The Company's management team has
extensive and diverse experience. Management has demonstrated its expertise by
deploying and operating TeleHub's ATM network and by developing a growing
customer base for its wholesale services, as well as developing, enhancing and
licensing the VASP(TM) technology.
4
<PAGE> 10
SUMMARY OF THE EXCHANGE OFFER
ISSUER..................... TeleHub Communications Corporation (the "Issuer").
SECURITIES OFFERED......... The Company is offering to exchange $1,000 in
principal amount (and any integral multiple
thereof) of New Notes for each $1,000 in principal
amount (and any integral multiple thereof) of Old
Notes that are validly tendered pursuant to the
Exchange Offer. The Company will issue the New
Notes promptly after the Expiration Date. On the
date of this Prospectus, $125,000,000 in aggregate
principal amount of Old Notes are outstanding. The
Company has not entered into any arrangement or
understanding to distribute the New Notes issued in
the Exchange Offer.
RESALE OF NEW NOTES........ The Company believes that the New Notes issued
pursuant to the Exchange Offer generally will be
freely transferable by their holders without
registration or any prospectus delivery requirement
under the Securities Act, except that a "dealer" or
any Company "affiliate" (as such terms are defined
under the Securities Act) that exchanges Old Notes
held for its own account may be required to deliver
copies of this Prospectus when reselling the
corresponding New Notes. See "The Exchange
Offer -- General" and "Plan of Distribution."
EXPIRATION DATE............ The Exchange Offer will expire at 5:00 p.m., New
York City time, on , 1998, unless
extended, in which case the term Expiration Date
means the latest date and time to which the
Exchange Offer is extended. The Company will accept
for exchange any and all Old Notes that are validly
tendered in the Exchange Offer prior to 5:00 p.m.,
New York City time, on the Expiration Date.
INTEREST ON THE NEW
NOTES...................... Cash interest on the New Notes will not accrue on
the Notes prior to July 31, 2001. The New Notes
will accrete at a rate of 13.875% from July 30,
1998, compounded semi-annually to an aggregate
principal amount of $125.0 million by July 31,
2001. Thereafter, interest on the New Notes will be
payable semi-annually on January 31 and July 31 of
each year commencing January 31, 2002.
TERMINATION................ The Company may terminate the Exchange Offer if it
determines that its ability to proceed with the
Exchange Offer could be materially impaired due to
any legal or governmental action, any new law,
statute, rule or regulation or any interpretation
by the staff of the Commission of any existing law,
statute, rule or regulation. Holders of Old Notes
will have certain rights against the Company under
the Registration Rights Agreement should the
Company fail to consummate the Exchange Offer. See
"The Exchange Offer -- Termination." No federal or
state regulatory requirements or approvals are
needed in connection with the Exchange Offer, other
than applicable requirements under federal and
state securities laws.
PROCEDURES FOR TENDERING
OLD NOTES.................. Each beneficial owner owning interests in Old Notes
("Beneficial Owner") through a DTC Participant (as
defined) must instruct such DTC Participant to
cause Old Notes to be tendered in accordance with
the procedures set forth in this Prospectus and in
the Letter of Transmittal. See "The Exchange
Offer -- Procedures for Tendering Old Notes". Each
participant (a "DTC Participant") in the Depository
Trust Company ("DTC") holding Old Notes through DTC
must (i) electronically
5
<PAGE> 11
transmit its acceptance to DTC through the DTC
Automated Tender Offer Program ("ATOP"), for which
the transaction will be eligible, and DTC will then
verify the acceptance, execute a book-entry
delivery to the Exchange Agent (as defined herein)
account at DTC and send an Agent's Message (as
defined herein) to the Exchange Agent for its
acceptance, or (ii) comply with the guaranteed
delivery procedures set forth in this Prospectus
and in the Letter of Transmittal. By tendering
through ATOP, DTC Participants will expressly
acknowledge receipt of the accompanying Letter of
Transmittal and agree to be bound by its terms and
the Company can enforce such agreement against such
DTC Participants. See "The Exchange
Offer -- Procedures for Tendering Old Notes".
Each holder of Old Notes must (i) complete and sign
a Letter of Transmittal, and mail or deliver such
Letter of Transmittal, and all other documents
required by the Letter of Transmittal, together
with certificate(s) representing all tendered Old
Notes, to the Exchange Agent at its address set
forth in this Prospectus and in the Letter of
Transmittal, or (ii) comply with the guaranteed
delivery procedures set forth in this Prospectus.
See "The Exchange Offer -- Procedures for Tendering
Old Notes".
By tendering, each holder of Old Notes will
represent to the Company that, among other things,
(i) it is not an affiliate of the Company, (ii) it
is not a broker-dealer tendering Old Notes acquired
directly from the Company for its own account,
(iii) the New Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary
course of business of such holder and (iv) it has
no arrangements or understandings with any person
to participate in the Exchange Offer for the
purpose of distributing the New Notes. See "The
Exchange Offer -- General."
GUARANTEED DELIVERY
PROCEDURES............... DTC Participants holding Old Notes through DTC who
wish to cause their Old Notes to be tendered, but
who cannot transmit their acceptance through ATOP
prior to the Expiration Date, may effect a tender
in accordance with the procedures set forth in this
Prospectus and in the Letter of Transmittal. See
"The Exchange Offer -- Guaranteed Delivery
Procedures." Holders who wish to tender their Old
Notes but (i) whose Old Notes are not immediately
available and will not be available for tendering
prior to the Expiration Date, or (ii) who cannot
deliver their Old Notes, the Letter of Transmittal
or any other required documents to the Exchange
Agent prior to the Expiation Date, may effect a
tender in accordance with the procedures set forth
in this Prospectus. See "The Exchange
Offer -- Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS.......... Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
Expiration Date, in accordance with the procedures
set forth in "the Exchange Offer -- Withdrawal of
Tenders".
ACCEPTANCE OF OLD NOTES AND
DELIVERY OF NEW NOTES.... Subject to certain conditions as summarized above
in "Termination" and described more fully in "The
Exchange Offer -- Termination", the Company will
accept for exchange any and all Old Notes that are
validly tendered in the Exchange Offer prior to
5:00 p.m., New York City time, on the Expiration
Date. The New Notes issued pursuant to the Exchange
6
<PAGE> 12
Offer will be delivered promptly following the
Expiration Date. See "The Exchange
Offer -- General."
FEDERAL INCOME TAX
CONSIDERATIONS........... The exchange of Old Notes for New Notes generally
will not be a taxable event for federal income tax
purposes. For a discussion of certain federal
income tax considerations relating to the exchange
of the Old Notes for the New Notes, see "Certain
Federal Income Tax Considerations".
EXCHANGE AGENT............. The Trustee is also the Exchange Agent. The mailing
address of the Exchange Agent is: State Street
Bank, Two International Place -- 4th Floor, Boston,
Massachusetts 02110, Attention: Corporate Trust
Division: TeleHub Communications
Corporation -- 13.875% Senior Discount Notes due
2005. For information with respect to the Exchange
Offer, the telephone number for the Exchange Agent
is (617) and the facsimile number
for the Exchange Agent is (617) 664-5371.
USE OF PROCEEDS............ There will be no cash proceeds payable to the
Company from the issuance of the New Notes pursuant
to the Exchange Offer. The Company received net
proceeds from the Initial Note Offering of
approximately $78.1 million, after deducting the
Initial Purchaser's discount and estimated fees and
expenses from the Initial Offering. With those net
proceeds, the Company repaid a $12 million Bridge
Loan from Comdisco, Inc., and intends to use the
remainder to fund operating losses, to expand the
TeleHub network, for additional working capital and
for other general corporate purposes. See "Use of
Proceeds".
The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes, except that the New Notes will
not bear transfer restriction legends. The New Notes will be obligations of the
Company entitled to the benefits of the Indenture. See "Description of the
Notes." Following the completion of the Exchange Offer, the Old Notes will not
be entitled to any rights under the Note Registration Rights Agreement
including, but not limited to, any contingent increase in the interest rate. See
"the Exchange Offer".
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by prospective purchasers in evaluating an investment in the
Securities.
7
<PAGE> 13
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data for the period from
inception (January 18, 1996) to December 31, 1996, for the year ended December
31, 1997 and for the three months ended March 31, 1997 have been derived from
the Company's consolidated financial statements (the "Consolidated Financial
Statements") which have been audited by PricewaterhouseCoopers LLP., independent
accountants. The summary data as of and for the three months ended March 31,
1998 have been derived from unaudited consolidated financial statements of the
Company and, in the opinion of the Company, include all adjustments, consisting
of normal recurring accruals necessary for a fair presentation of such
information. Operating results for the three months ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the entire year.
The following summary consolidated financial data should be read in conjunction
with "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and the related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
INCEPTION TO YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, -------------------------
1996 1997 1997 1998
------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $ -- $ 2,901,280 $ -- $ 3,006,601
Operating expenses(1)................... 3,667,319 19,483,912 1,680,621 9,173,827
Depreciation and amortization........... 68,556 784,548 54,618 1,025,356
----------- ------------ ----------- -----------
Operating loss.............. (3,735,875) (17,367,180) (1,735,239) (7,192,582)
Amortization of debt discount........... (85,375) (546,875) (546,875) --
Interest expense, net(2)................ (66,973) (213,658) (14,375) (202,348)
Other income (expense)(3)............... (599,950) 34,889 38 1,005
----------- ------------ ----------- -----------
Net loss(4)................. $(4,488,173) $(18,092,824) $(2,296,451) $(7,393,925)
=========== ============ =========== ===========
Basic and diluted loss per share(5)..... $ (0.52) $ (1.70) $ (0.23) $ (0.59)
Weighted average shares outstanding used
in per share calculations -- basic and
diluted............................... 8,614,815 10,624,251 10,022,413 12,634,450
OTHER FINANCIAL DATA:
EBITDA(6)............................... $(3,667,319) $(16,582,632) $(1,680,621) $(6,167,226)
Capital expenditures.................... 3,028,715 18,221,327 12,082,857 1,280,301
Ratio of earnings to fixed charges(7)... -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF MARCH 31, 1998
1998 AS ADJUSTED(8)
--------------- --------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and restricted cash.................. $ 5,760,018 $ 71,816,268
Total assets................................................ 28,094,720 94,150,970
Total debt, including current portions(9)................... 12,154,209 73,447,281
Stockholders' equity........................................ 10,029,123 32,289,801
</TABLE>
- ---------------
See footnotes on following page.
8
<PAGE> 14
(1) Operating expenses consist of total operating expenses less depreciation
and amortization.
(2) Interest expense, net consists of the sum of interest expense and interest
income.
(3) Other income (expense) consists of the sum of indemnification expense and
other income.
(4) The Company has not recorded any benefit for income taxes due to the
uncertainty surrounding the realization of the favorable tax attributes in
future tax returns. Accordingly, the Company has recorded a valuation
allowance against its total net deferred tax assets.
(5) The Company computes loss per share pursuant to Statement of Financial
Accounting Standard No. 128, Earnings Per Share. The dilutive effect of
options, warrants, and the Preferred Stock have not been considered as
their effect would have been antidilutive for all periods presented. See
Note 15 to the Consolidated Financial Statements.
(6) EBITDA consists of operating loss before depreciation and amortization.
EBITDA is presented to enhance an understanding of the Company's operating
results and is not intended to represent cash flow or results of operations
in accordance with generally accepted accounting principles for the periods
indicated and may be calculated differently than similarly titled measures
for other companies.
(7) For purposes of calculating ratio of earnings to fixed charges, earnings
consist of earnings (losses) before fixed charges. Fixed charges consist of
interest on debt, amortization of deferred financing costs, and that
portion of rental expense the Company believes to be representative of
interest (i.e., one third of rent expense). For the period from January 18,
1996 (inception) to December 31, 1996, for the year ended December 31, 1997
and for the three months ended March 31, 1998, the Company's earnings were
insufficient to cover its fixed charges by $3.7 million, $14.4 million and
$5.6 million respectively. On a pro forma basis, after giving effect to the
Initial Note Offering (assuming an annual interest rate on the Notes of
13 1/2% per annum), the Company's earnings would have been insufficient to
cover fixed charges by $18.6 million, $31.9 million and $10.4 million,
respectively, for such periods.
(8) "As Adjusted" gives effect to the Initial Note Offering and the net
proceeds therefrom less approximately $12 million to be used to repay the
Bridge Loan. Based on the assumption used for the Initial Note Offering, a
value of $22.3 million has been ascribed to the Warrants. The value
ascribed to the Warrants will result in the Debt Discount, which will be
amortized to interest expense using the effective interest method over the
period that the Notes are outstanding.
(9) Total debt, including current portions, consists of capital lease
obligations and other long-term debt, including current portions. The Notes
are presented net of the Debt Discount and will accrete in value through
July 31, 2001 at a rate of 13 7/8% per annum compounded semi-annually. No
interest will be payable in cash on the Notes prior to January 31, 2002.
9
<PAGE> 15
RISK FACTORS
An investment in the Exchange Notes involves substantial risks. Prospective
purchasers should consider carefully the specific factors set forth below as
well as the other information contained in this Prospectus in evaluating whether
to invest in the Exchange Notes.
SUBSTANTIAL OPERATING LOSSES AND EXPECTED LOSSES
The Company has generated minimal VASP(TM) licensing or wholesale long
distance revenues and has a very limited operating history with which investors
can evaluate TeleHub's future performance. TeleHub has reported substantial net
losses since inception, primarily as a result of expenses associated with the
development of VASP(TM), implementation of the ATM network and operational
expenses. TeleHub's profitability depends on the demand for its VASP(TM)
software and its wholesale long distance services. There can be no assurance
that TeleHub will attain profitability in the future. Failure to be profitable
could impair TeleHub's ability to expand its long distance business, continue
additional technology development and raise additional equity or debt financing.
Such events could have a material adverse effect on TeleHub, the value of the
Securities and the Company's ability to repay the Notes.
EARLY COMMERCIAL STAGE OF THE COMPANY
The success of TNS in the wholesale long distance business depends upon
TNS's ability to generate significant customer traffic and to manage an
efficient long distance network and related customer service. The Company has
not previously managed a long distance network and there can be no assurance
that its wholesale long distance services can be sold at a profit. The failure
of TNS to generate significant customer traffic, implement VASP(TM) enhancements
in a timely manner, effectively manage the ATM network and related customer
services, or operate its business at a profit could have a material adverse
effect on the Company's business, operating results and financial condition.
TNS is a recent entrant into the long distance business and its three
switch locations and national ATM network became commercially operational only
in December 1997. The Company expects that it will incur substantial operating
losses and generate negative cash flow unless and until its customers route
sufficient traffic over the ATM network. The Company currently does not
anticipate that sufficient traffic will be carried on its network to cover its
cost of operations before 1999 at the earliest based on certain assumptions as
to the growth of traffic on TNS's network and the control of its operating
expenses. Such assumptions may prove to be inaccurate due to changes in the
businesses of TNS's wholesale customers, TNS's ability to attract new customers,
technical and/or logistical problems in the operation of the ATM network, TNS's
limited experience with wholesale long distance services, unanticipated
increases in operating expenses or other factors affecting TNS's revenues or
expenses.
TTC has yet to achieve OEM or custom platform licensing revenues sufficient
to sustain the entity as a self-supporting, independent business unit. Until
that occurs, its development efforts will continue to exert a negative impact on
the Company's overall financial performance. The Company has not previously
entered into OEM or custom platform licensing relationships. There can be no
assurance that it will successfully enter into such relationships in the future
or that it will be able to license its technology at a profit. The failure of
TTC to generate sufficient OEM or custom platform licensing revenues in a timely
manner, develop subsequent releases of its technology, or operate its business
at a profit could have a material adverse effect on the Company's business,
operating results and financial condition.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
As a result of the Initial Note Offering, the Company will be highly
leveraged. On a pro'forma basis after giving effect to the Initial Note Offering
and the use of proceeds therefrom, the Company would have had approximately
$73.4 million of total consolidated indebtedness outstanding at March 31, 1998
(including current portion but net of Debt Discount). In addition, the Indenture
permits the Company and its subsidiaries to incur substantial additional
indebtedness subject to certain restrictions. See "Description of
Notes -- Certain Covenants." Although the Company expects the proceeds from the
Initial Note Offering to
10
<PAGE> 16
provide sufficient funds to take the Company to positive cash flow, the Company
may need to incur substantial additional indebtedness to finance the continued
development, commercial deployment and expansion of its network and to fund
operating losses. The degree to which the Company is leveraged could have
important consequences to the holders of the Notes, including, but not limited
to, the following: (i) the Company's ability to obtain additional financing or
refinancing in the future for working capital, capital expenditures, service
development and enhancement, acquisitions, general corporate purposes and other
purposes may be materially limited or impaired; (ii) the Company's cash flow, if
any, may be unavailable for the Company's business since a substantial portion
of the Company's cash flow must be dedicated to the payment of principal and
interest on its indebtedness, including the Notes; (iii) the terms of future
permitted indebtedness may limit the Company's ability to redeem the Notes in
the event of a Change of Control; and (iv) the Company's high degree of leverage
may make it more vulnerable to economic downturns, may limit its ability to
withstand competitive pressures and may reduce its flexibility in responding to
changing business and economic conditions. No assurance can be given that the
Company will be successful in developing and maintaining a level of cash flow
from operations sufficient to permit it to pay the principal, premium, if any,
and interest on its indebtedness, including the Notes. The ability of the
Company to make scheduled payments with respect to indebtedness (including the
Notes) will depend upon, among other things: (i) the Company's ability to
achieve significant and sustained growth in cash flow; (ii) the rate of success
of the commercial deployment of its network; (iii) the market acceptance of,
customer demand for, rate of utilization of and pricing for the Company's
products and services; (iv) the future operating performance of the Company and
the extent to which the Company's products and services are subject to
performance problems; (v) the Company's ability to successfully complete
development, upgrades and enhancements of its technology products and its
network and (vi) the Company's ability to complete additional financings, as
necessary. Each of these factors is, to a large extent, subject to economic,
financial, competitive and other factors, many of which are beyond the Company's
control. If the Company is unable to generate sufficient cash flow to service
its indebtedness, including the Notes, it may have to reduce or delay network
deployments or product development, restructure or refinance its indebtedness or
seek additional equity capital. There can be no assurance that any of these
strategies could be effected on satisfactory terms, if at all, in light of the
Company's high leverage, or that any such strategy would yield sufficient
proceeds to service and repay the Company's indebtedness, including the Notes.
Any failure by the Company to satisfy its obligations with respect to the
Notes at maturity or prior thereto would constitute a default under the
Indenture and could cause a default under agreements governing other
indebtedness of the Company. In the event of such default, the holders of such
indebtedness would have enforcement rights, including the right to accelerate
such debt and the right to commence an involuntary bankruptcy proceeding against
the Company. Absent successful commercial introduction of VASP(TM), ongoing
technical development of the ATM network to achieve scalability and reduced
costs and significant growth of its cash flow, the Company will not be able to
service or repay its indebtedness, including the Notes.
HOLDING COMPANY STRUCTURE; RESTRICTIONS ON ACCESS TO SUBSIDIARY CASH FLOW
The Issuer is a holding company that conducts substantially all of its
operations through its subsidiaries. Because the Issuer conducts operations
through subsidiaries, the Issuer's cash flow and its ability to service its
indebtedness, including the Notes, will depend upon the cash flow of its
subsidiaries and payments of funds by those subsidiaries to the Issuer in the
form of repayment of loans, dividends or otherwise. In addition, the Indenture
will permit these subsidiaries to incur indebtedness or become parties to
financing arrangements, which may contain limitations on the ability of such
subsidiaries to pay dividends or to make loans or advances to the Issuer.
Further, any holders of secured indebtedness (including trade payables) of the
Issuer's subsidiaries would be entitled to repayment of such indebtedness from
the assets of the affected subsidiaries before such assets were made available
for distribution to the Issuer. See "Description of Notes -- Certain Covenants."
11
<PAGE> 17
TECHNOLOGICAL UNCERTAINTY
TeleHub's business strategy is based upon the VASP(TM) platform and
demonstrating its viability through the VASP(TM)-managed ATM network.
Enhancements to the VASP(TM) platform are continually under development. The
chosen ATM technology for the TeleHub network is not yet widely utilized in
publicly switched voice or data networks. ATM technical standards are still
being developed and the projected savings from increased transmission
capabilities have yet to be validated in actual performance. Unforeseen problems
could emerge with respect to the VASP(TM) platform or the ATM network. The
results of TNS's operations, to date, do not necessarily prove the viability or
efficacy of the network when fully deployed under a load of heavy
telecommunications traffic transmission. The telecommunications industry is
subject to rapid and significant changes in technology; for example, other
competitive techniques for implementing ATM could be developed. There can be no
assurance that TNS will maintain competitive services or that TTC will develop
new technologies on a timely basis or on satisfactory terms. Such an increase in
supply or failure by TNS to maintain competitive services or TTC to develop new
technologies could have a material adverse effect on the Company's business,
operating results and financial condition.
RISKS INHERENT IN RAPID GROWTH
TeleHub's strategy envisions rapid growth through entering the wholesale
long distance business through TNS and the technology market through TTC. That
expected growth will place a significant strain on TeleHub's management and
operational and financial resources. To manage its growth effectively, TeleHub
must continuously improve its operational and financial systems, forecasting and
controls. Any substantial inaccuracies in the forecasts of product usage and
growth could produce a shortage or excess of personnel and facilities that would
adversely affect TeleHub's financial and service performance. If growth is not
effectively managed and the quality of service or support is not maintained at
acceptable levels, the business may be negatively impacted. Rapid growth will
require: (i) training and retaining of new personnel; (ii) satisfactory
performance of TeleHub's customer interface and billing systems; (iii)
development and introduction of new products; and (iv) control of TeleHub's
expenses related to the expansion into the wholesale long distance business. The
Company's failure to satisfy these requirements, or otherwise to manage its
growth effectively, would have a material adverse effect on the Company's
business, operating results and financial condition.
PATENTS, PROPRIETARY RIGHTS AND THE RISK OF LITIGATION
The Company relies on a combination of patent, copyright and trademark
laws, trade secrets, confidentiality and non-disclosure agreements and other
contractual provisions to protect its proprietary rights, measures that provide
only limited protection. The Company currently has several pending patent
applications. There can be no assurances that the Company's means of protecting
its proprietary rights in the United States or abroad will be adequate or that
competitors will not independently develop similar technologies. The Company's
future success will depend in part on its ability to protect its proprietary
rights to the technologies used by VASP(TM). Despite the Company's efforts to
protect its proprietary rights, unauthorized parties may attempt to copy aspects
of the Company's products or obtain and use information that the Company regards
as proprietary. The Company has applied to register certain of its trademarks in
the United States and other countries. There can be no assurances that the
Company will obtain registrations of principle marks in key markets. Failure to
obtain registrations could compromise the Company's ability to fully protect its
trademarks and brands and could increase the risk of challenge from third
parties to its use of its trademarks and brands. In addition, the laws of some
foreign countries do not protect proprietary rights as fully as do the laws of
the United States. There can be no assurance that any issued patent will
preserve the Company's proprietary position, or that others will not be able to
develop technologies similar to or superior to the Company's technology. The
Company licenses from third parties certain technology used in and for its
products and services. There can be no assurances that such technology will
remain available to the Company on terms beneficial to the Company. Failure of
the Company to enforce and protect its intellectual property rights or obtain
from third parties the right to use necessary technology could have a material
adverse effect on the Company's business, operating results and financial
condition.
12
<PAGE> 18
From time to time, third parties, including competitors of the Company,
have asserted patent, copyright or other intellectual property rights to
technologies that are important to the Company or that are relevant to products
that might be of interest to the Company. From time to time, the Company
receives notice from such third parties of the intellectual property rights such
parties have obtained. The Company expects that it will increasingly receive
such notices and may, at times, be subject to infringement claims as the number
of products and competitors in the telecommunications industry grows and the
functionality of products overlaps. Any infringement claim or other litigation
against or by the Company could cause the Company to incur substantial costs and
diversion of management resources, and could have a material adverse effect on
the Company's business, financial condition and results of operations.
Furthermore, parties making such claims could secure a judgment awarding
substantial damages, as well as injunctive or other equitable relief that could
effectively block the Company's ability to license its products in the United
States or abroad. Such a judgment would have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
the Company is obligated under certain agreements to indemnify the other party
in connection with infringement by the Company of the proprietary rights of
third parties. In the event the Company is required to indemnify parties under
these agreements, it could have a material adverse effect on the business,
financial condition and results of operations of the Company. In the event a
claim relating to proprietary technology or information is asserted against the
Company, the Company may seek licenses to such intellectual property. There can
be no assurance, however, that licenses could be obtained on commercially
reasonable terms, if at all, or that the terms of any offered licenses would be
acceptable to the Company. If forced to cease using such technology, there can
be no assurance that the Company would be able to develop or obtain alternate
technology. Accordingly, an adverse determination in a judicial or
administrative proceeding or failure to obtain necessary licenses could prevent
the Company from manufacturing, using or selling certain of its products and
services, which could have a material adverse effect on the Company's business,
financial condition, competitive position and results of operations and its
ability to pay the interest on and principal of the Notes.
RISK OF MARKET ACCEPTANCE
The software-based VASP(TM) technology is new and a dramatic departure from
the embedded network switching and control components used by the major IXCs and
ILECs that are potential consumers of the VASP(TM) platform and ancillary
services. As a class, they have demonstrated a tendency to be risk averse and
are unaccepting of change or technological innovation without cautious,
time-consuming testing and evaluation. They also tend to purchase from major
hardware and software vendors that they have utilized previously and with whom
they have ongoing business relationships. This phenomenon, sometimes referred to
as "the inertia of capital commitment" is a barrier to market acceptance of
VASP(TM). Without some level of market acceptance, the probability of TeleHub's
long-term success is greatly diminished.
LONG DISTANCE PRICING PRESSURES AND RISKS OF INDUSTRY OVERCAPACITY
The long distance transmission industry generally has been characterized by
over-capacity and declining prices since shortly after the 1984 divestiture by
AT&T of its Regional Bell Operating Companies ("RBOCs"). The Company believes
that, in the last several years, increasing demand has reduced the over-
capacity and downward pricing pressure. However, the Company anticipates that
prices for TNS's services may decline over the next several years. The Company
is aware that certain long distance carriers are expanding their capacity and
believes that other long distance carriers, as well as other potential new
entrants to the industry, are constructing and installing switches and new fiber
optic cable, and other long distance transmission networks. Further, recent
technological advances, such as ATM and wave division multiplexing, have shown
the potential to greatly expand the capacity of existing and new fiber optic
cable. If industry expansion results in capacity that exceeds demand overall or
along any of TNS's routes, additional downward pricing pressure could develop.
In addition, strategic alliances or strategic transactions, such as the recently
announced long distance capacity purchasing alliance among certain RBOCs, could
result in additional price competition among long distance carriers. Such
pricing pressure could have a material adverse effect on the Company's business,
operating results and financial condition.
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COMPETITION
Overview. The communications services industry is highly competitive,
rapidly evolving and subject to constant technological change. In particular,
there are numerous companies offering long distance services, and the Company
expects competition to increase in the future. The Company believes that
existing competitors are likely to continue to expand their service offerings to
appeal to existing or potential customers of the Company. Many of the Company's
existing competitors have financial, personnel and other resources, including
brand name recognition, substantially greater than that of the Company. New
competitors are likely to enter the communications market, some of whom may have
financial, personnel and other resources, including brand name recognition,
substantially greater than that of the Company.
In addition, the regulatory environment in which the Company operates is
undergoing significant change. As this regulatory environment evolves, changes
may occur which could create greater or unique competitive advantages for all or
some of the Company's current or potential competitors, or could make it easier
for additional parties to provide services. Many communications companies
operate generally in the long distance market in which the Company operates, and
there are numerous companies that offer wholesale long distance services, which
are offered by the Company. As a service provider in the long distance industry,
the Company competes with several well-established providers, as well as many
other long distance providers with less significant market shares. Moreover,
certain of the Company's competitors may be better situated to negotiate more
favorable contracts with suppliers.
Domestic and International Long Distance. The long distance communications
industry is intensely competitive and significantly influenced by the marketing
and pricing decisions of the larger industry participants such as AT&T, MCI
Communications Corp. ("MCI"), Sprint and WorldCom. Moreover, the industry is
undergoing significant consolidation that has created and will continue to
create numerous other entities with substantial resources to compete for long
distance business. In addition, as a result of the Telecommunications Act, RBOCs
are able or will be able in the future to enter the long distance market. New
technologies could also give rise to new regulation or new competitors. The
Company's larger competitors have significantly greater name recognition,
financial, technical, network and marketing resources. They may also offer a
broader portfolio of services and have long standing relationships with
customers targeted by the Company and long standing relationships with
regulators.
The Company has entered into telecommunications services agreements with
its wholesale long distance customers which do not contain minimum usage
commitments and which are cancellable upon short notice without penalties. If
these service agreements are cancelled, or are not renewed upon expiration, the
loss of customers could have a material adverse effect on the Company's
business, operating results and financial condition. Although the Company
believes that TNS offers switched wholesale services at rates generally lower
than those offered by other competing wholesale service providers, prices for
domestic and international long distance calls have decreased in recent years
and are likely to continue to decrease. There can be no assurance that the
Company will be able to compete effectively in the domestic or international
long distance markets.
Networks. The Company believes that its VASP(TM)-managed ATM network is
unique in that it allows for the first ATM service in commercial operation that
can be switched into the PSTN. Other telecommunications providers can provide
their own networks and can provide those networks to other carriers. Numerous
established and start-up national and regional fiber optic networks are owned by
IXCs, ILECs and CLECs, including AT&T, MCI and Sprint, each of whom has greater
name recognition and financial, personnel, technical and marketing resources
than the Company. Other established companies including AT&T, Sprint and Bell
Atlantic have announced or may be planning the construction of ATM networks that
can be switched into the PSTN.
TTC faces competition from some of the most experienced companies engaged
in the development of telecommunications equipment and related software.
Examples include switch vendors (Lucent, Nortel and Siemens Corporation
("Siemens")), ATM vendors (Nortel, Siemens, Alcatel (as defined), Cisco and
Ascend Communications, Inc. ("Ascend")), signaling products vendors (Nortel and
Tekelec (as defined)), and OSS providers (Hewlett-Packard Inc. and Applied
Digital Access Inc.). The Company believes that
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existing competitors are likely to continue to expand their product offerings to
appeal to existing or potential customers of the Company. Many of the Company's
existing competitors have financial, personnel and other resources, including
brand name recognition, substantially greater than the Company.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
The Company currently anticipates that its available cash resources
combined with the net proceeds of the Initial Note Offering and funds from
operations will be sufficient to meet its anticipated working capital and
capital expenditure requirements for at least the next twelve months. However,
there can be no assurance that such resources will be sufficient for its
anticipated working capital and capital expenditure requirements. The Company
may need to raise additional funds through public or private debt or equity
financings in order to take advantage of opportunities, including more rapid
expansion or acquisitions of complementary business or technologies, or to
develop new products or otherwise respond to unanticipated competitive
pressures. The Company may also raise additional funds through public or private
debt or equity financings if such financings become available on favorable
terms. If it is necessary to raise additional funds, there can be no assurance
that additional financing will be available on terms favorable to the Company,
or at all. If adequate funds are not available on acceptable terms, the Company
may not be able to take advantage of opportunities, develop new products or
otherwise respond to competitive pressures. Such inability could have a material
adverse effect on the Company's business, results of operations and financial
condition. The Company's forecast of the period of time through which its
financial resources will be adequate to support its operations is a forward
looking statement that involves risks and uncertainties, and actual results
could vary materially as a result of a number of factors, including those set
forth above in this paragraph. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
SUBSTANTIAL FUTURE CAPITAL REQUIREMENTS
The Company will require substantial additional funds for the continued
development, commercial deployment and expansion of its network. As of March 31,
1998, the Company had $5.8 Million in cash, cash equivalents and restricted
cash. From inception until March 31, 1998, the Company incurred operating
expenses of approximately $32.3 million in the development of its business,
development of technology and operating support systems, deployment of sales and
marketing activities and establishment of its management team. In addition, the
Company has made and expects to continue to make significant capital outlays in
order to continue required development activities, commercially deploy its
products and services and fund operations until such time, if at all, as the
Company begins to generate positive EBITDA. The Company believes the proceeds
from the Initial Note Offering will be sufficient to fund the Company's
aggregate capital expenditures and working capital requirements, including
operating losses, associated with the rollout of its products and services.
While the Company believes that the net proceeds from the Initial Note Offering,
together with cash on hand, will be sufficient to finance its rollout, it may
need to secure additional financing to enter new markets for its products and
services. If demand for the Company's products and services is less than
expected, the Company may require additional financing at an earlier date. There
can be no assurance that the Company will be able to implement its rollout
strategy in a timely fashion, if at all. There can be no assurance that the
Company's current estimates of EBITDA, which will depend on numerous future
factors and conditions described elsewhere in "Risk Factors," many of which are
outside of the Company's control, will be accurate, and it is likely that actual
results will vary materially from such estimates. The Company has no present
commitments or arrangements assuring it of any future equity or debt financing,
and there can be no assurance that any such equity or debt financing will be
available to the Company on favorable terms or at all. In addition, the
Indenture contains certain covenants restricting the Company's ability to incur
further indebtedness, and future borrowing instruments such as credit facilities
are likely to contain similar or more restrictive covenants and could require
the Company to pledge assets as security for borrowings thereunder. In the event
that the Company is unable to obtain such additional capital or is required to
obtain it on unsatisfactory terms, the Company will be required to delay the
expansion of its business or take or forego actions that could materially
adversely affect the Company's business, prospects, operating results, financial
condition and its ability to service and repay its indebtedness, including the
Notes. In the event that the
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<PAGE> 21
Company is unable to generate sufficient cash flow and is otherwise unable to
obtain funds necessary to meet required payments on its indebtedness, the
Company could be in default under the terms of the agreements governing its
indebtedness, including the Notes. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of Notes will be
entitled to require the Company to repurchase any or all of the Notes held by
such holder at the prices stated herein. However, the Company's ability to
repurchase the Notes upon a Change of Control may be limited by the terms of
then-existing contractual obligations of the Issuer and its subsidiaries. In
addition, the Company may not have adequate financial resources to effect such a
repurchase, and there can be no assurance that the Company would be able to
obtain such resources through a refinancing of the Notes to be repurchased or
otherwise. If the Company fails to repurchase all of the Notes tendered for
repurchase upon the occurrence of a Change of Control, such failure will
constitute an Event of Default under the Indenture.
With respect to the sale of assets referred to in the definition of Change
of Control, the phrase "all or substantially all" as used in such definition
varies according to the facts and circumstances of the subject transaction, has
no clearly established meaning under the relevant law and is subject to judicial
interpretation. Accordingly, in certain circumstances there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the assets of a Person (as defined)
and therefore it may be unclear whether a Change of Control has occurred and
whether the Notes are subject to an offer to repurchase.
The Change of Control provisions may not necessarily afford the holders
protection in the event of a highly leveraged transaction, including a
reorganization, restructuring, merger or other similar transaction involving the
Company that may adversely affect the holders, because such transactions may not
involve a shift in voting power or beneficial ownership or, even if they do, may
not involve a shift of the magnitude required under the definition of Change of
Control to trigger such provisions. Except as described under "Description of
Notes -- Repurchase at the Option of Holders -- Change of Control," the
Indenture does not contain provisions that permit the holders of the Notes to
require the Company to repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar transaction.
CONSEQUENCES OF ORIGINAL ISSUE DISCOUNT ON NOTES
The Notes will be issued at a substantial discount and a portion of the
issue price of the Old Notes was allocated to the warrants resulting in the
Notes having a deemed issue price less than their principal amount. U.S. federal
income tax laws will therefore treat the Notes as having original issue discount
("OID"). Consequently, U.S. purchasers of the Notes generally must recognize OID
amounts as gross income for U.S. federal tax purposes and pay taxes on such
deemed income before receiving the cash payments representing that income. If
the Notes are treated as "applicable high yield discount obligations," the
Company's deductions with respect to the OID on the Notes will be either
deferred until the Company makes the related payments or possibly, in part,
disallowed.
If a bankruptcy proceeding is commenced by or against the Company under the
United States Bankruptcy Code after the issuance of the Notes, the claim of a
holder of Notes may be limited to an amount equal to the sum of (i) the initial
offering price for the Notes and (ii) that portion of the OID that is not deemed
to constitute "unmatured interest" for purposes of the United States Bankruptcy
Code. Any OID that was not amortized as of the commencement of any such
bankruptcy proceeding would constitute "unmatured interest."
DEPENDENCE ON KEY PERSONNEL
TeleHub is managed by a small number of key executive officers, the loss of
whose services could have a material adverse effect on the Company. TeleHub
believes that its growth and future success will depend in large part on its
continued ability to attract and retain highly skilled and qualified personnel
and consultants.
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The loss of senior management or the failure to recruit additional qualified
personnel and consultants in the future could significantly impede TeleHub's
ability to achieve its financial, expansion, marketing and other objectives.
TeleHub has employment contracts with certain key executives. See "Management."
RECENT LEGISLATION AND REGULATORY UNCERTAINTY
Certain of TeleHub's operations are subject to regulation by the FCC and
state public utility commissions. The FCC is restructuring access rates and
universal service mechanisms which will affect TNS's costs and rates. Changes in
the regulation or interpretation of legislation affecting TeleHub's operations
could have a material adverse effect on the Company's business, operating
results and financial condition.
REGULATION
Telecommunications services are subject to significant regulation at the
federal, state, local and international levels, affecting the Company and its
existing and potential competitors. Delays in receiving the required regulatory
approvals or the enactment of new and adverse legislation, regulations or
regulatory requirements may have a material adverse effect on the Company's
business, operating results and financial condition. In addition, future
legislative, judicial and regulatory agency actions could alter competitive
conditions in the markets in which the Company intends to operate, in ways
disadvantageous to the Company.
The Company currently is subject to federal and state regulation of its
wholesale long distance telephone services, and may be subject to regulation of
any future services that are deemed local exchange services. To provide
international services, carriers must obtain a certificate from the FCC which
TNS has obtained. At the federal level, the Company is regulated by the FCC and
must maintain both interstate and international tariffs containing the currently
effective rates, terms and conditions for those services. Although the FCC
eliminated the tariffing requirements for interstate non-dominant carriers, such
carriers must continue to file interstate tariffs until a federal court
completes reviewing such detariffing and declares that the detariffing order is
lawful. TNS has filed interstate and international tariffs with the FCC.
Intrastate long distance services and local exchange services are subject to
various state laws and regulations, including certification, notification,
registration and tariffing requirements. The FCC and numerous state agencies
also impose prior approval requirements on transfers of control of certificated
carriers and assignments of regulatory authorizations. States also often require
prior approvals or notifications for the issuance of stock, bonds or other forms
of indebtedness. As a result, in certain states, TNS requested approvals, made
notifications of or took other actions relating to its issuance of a Guarantee
pursuant to the Initial Note Offering. While TNS expects to obtain all necessary
approvals for the Exchange, there can be no assurance that such approvals will
be obtained, or that they will be obtained on a timely basis. The FCC and state
regulatory agencies generally retain the right to sanction a carrier, impose
forfeitures, mandate refunds or impose other penalties in the event of
regulatory non-compliance by a carrier. There can be no assurance that future
regulatory, judicial or legislative activities will not have a material adverse
effect on the business, operating results and financial condition of the Company
or that domestic or international regulators or third parties will not raise
material issues with regard to the Company's compliance or non-compliance with
applicable laws and regulations.
CONCENTRATION OF STOCK OWNERSHIP
As of July 15, 1998, assuming the exercise of all options and warrants and
conversion of Preferred Stock, the key executives and major stockholders
beneficially owned approximately 70% of the outstanding voting power of the
Company. As a result, these stockholders, if they act together, could elect all
Directors and exercise control over TeleHub's business, policies and affairs,
and could approve or disapprove all actions requiring shareholder approval,
including amendments to the Issuer's Articles of Incorporation (the "Articles")
and Bylaws, certain mergers or similar transactions. This concentration of stock
ownership could delay, prevent or discourage a change in control of TeleHub or
the removal of existing management. See "Security Ownership of Certain
Beneficial Owners and Management."
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ABSENCE OF PUBLIC MARKET
There has not been any public market for the Old Notes. The Company does
not intend to list the New Notes on any securities exchange or to seek approval
for quotation through any automated quotation system. There can be no assurance
that an active trading market will develop or be sustained in the New Notes. If
a market for the New Notes does develop, the market value of the New Notes will
depend on market conditions (such as yields on alternative investments, general
economic conditions, the Company's financial condition and other conditions.
Such conditions might cause the New Notes, to the extent they are actively
traded, to trade at a significant discount from face value.
CONSEQUENCE OF FAILURE TO EXCHANGE
Untendered Old Notes that are not exchanged for New Notes pursuant to the
Exchange Offer will remain subject to the existing restrictions on transfer of
such Old Notes. Additionally, holders of any Old Notes not tendered in the
Exchange Offer will not have any rights under the Note Registration Rights
Agreement to cause the Company to register the Old Notes, and the interest rate
on the Old Notes will remain at its initial rate of 13.875% per annum.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Articles, the Bylaws and Nevada law could
discourage, delay or prevent a change in control of management of TeleHub. Those
provisions limit the ability of shareholders to remove incumbent directors or to
change the composition of the Board of Directors (the "Board"). Consequently,
incumbent directors may be able to retain their positions even after a change in
control. The Articles and Bylaws also limit the ability of the shareholders to
act independently from the Board. The Articles authorize the issuance of
preferred shares with such designations, rights and preferences as the Board may
determine without further shareholder approval (See "Description of Capital
Stock -- Preferred Stock"); the issuance of preferred shares could adversely
affect the voting power or other rights of holders of shares of Common Stock and
could be used to discourage, delay or prevent a change in control. The General
Corporation Law of Nevada (the "Nevada Act") prohibits a Nevada corporation from
engaging in any of a broad range of business combinations with any interested
shareholder (10% or more voting power) without Board approval for a period of
three years after the shareholder became an interested shareholder. The Nevada
Act also requires Board or shareholder approval to acquire a controlling
interest in TeleHub. See "Description of Capital Stock -- Special Provisions of
the Company's Articles, Bylaws and Nevada Corporate Law."
YEAR 2000 ISSUES
The Company believes that its systems, including VASP(TM), do not require
updating to continue to function properly beyond 1999. The Company believes that
adequate resources have been allocated for this purpose and does not expect to
incur significant expenditures to address this issue. However, there can be no
assurance that the Company will identify all Year 2000 problems in its systems
in advance of their occurrence or that the Company will be able to successfully
remedy any problems that are discovered. The expenses of the Company's efforts
to address such problems, or the expenses or liabilities to which the Company
may become subject as a result of such problems, could have a material adverse
effect on the Company's business, prospects, operating results, financial
condition and its ability to service and repay indebtedness, including the
Notes. In addition, the revenue stream and financial stability of existing
customers may be adversely impacted by Year 2000 problems, which could cause
fluctuations in the Company's revenues and operating profitability.
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THE EXCHANGE OFFER
This summary of certain provisions of the Note Registration Rights
Agreement does not purport to be complete and Noteholders should refer to the
actual provisions of the Note Registration Rights Agreement, which was filed as
an exhibit to the Registration Statement of which this Prospectus constitutes a
part. Copies of the Note Registration Rights Agreement are available upon
request to the Company.
PURPOSE AND EFFECT
The Old Notes were sold by the Issuer to the Initial Purchaser on July 30,
1998. The Initial Purchaser subsequently resold the Old Notes in reliance on
Rule 144A under the Securities Act. The Issuer and the Initial Purchaser entered
into the Note Registration Rights Agreement, pursuant to which the Issuer
agreed, with respect to the Old Notes and subject to the Issuer's determination
that the Exchange Offer is permitted under applicable law, to (i) file, on or
before September 28, 1998, a registration statement with the Commission under
the Securities Act concerning the Exchange Offer, and (ii) use its best efforts
(a) to cause such registration statement to be declared effective by the
Commission on or before December 12, 1998, and (b) to consummate the Exchange
Offer on or before January 26, 1999. The Issuer will keep the Exchange Offer
open for at least 30 days (or longer if required by applicable law) after the
date the notice of the Exchange Offer is mailed to the holders of the Old Notes.
This Exchange Offer is intended to satisfy the Issuer's exchange offer
obligations under the Note Registration Rights Agreement.
If applicable interpretations of the Commission staff would not permit the
Company to effectuate the Exchange Offer or, if for any other reason the
Exchange Offer is not consummated prior to January 26, 1999, the Company will
register the resale of the Old Notes and use its best efforts to have such
resale registration statement become effective within 90 days after filing. The
Company will keep this resale registration effective until July 30, 2000, or
until all Old Notes have been resold pursuant to such resale registration
statement.
TERMS OF THE EXCHANGE OFFER
The Issuer hereby offers, upon the terms and subject to the conditions set
forth herein and in the accompanying Letter of Transmittal, to exchange up to
(i) $125.0 million aggregate principal amount of New Notes for up to $125.00
million aggregate principal amount of outstanding Old Notes. The Issuer will
accept for exchange any and all Old Notes that are validly tendered on or prior
to 5:00 p.m., New York City time, on the Expiration Date. The Issuer will issue
$1,000 principal amount of New Notes in exchange for each $1,000 principal
amount of outstanding Old Notes accepted in the Exchange Offer. Holders may
tender some or all of their Old Notes pursuant to the Exchange Offer. However,
Old Notes may be tendered only in integral multiples of $1,000. Tenders of the
Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time,
on the Expiration Date with respect to the Exchange Offer applicable to such Old
Notes. The Exchange Offer is not conditioned upon any minimum principal amount
of Old Notes being tendered for exchange. However, the Exchange Offer is subject
to the terms and provisions of the Note Registration Rights Agreement. See
"-- Conditions of the Exchange Offer."
As of the date of this Prospectus, (i) $125.0 million in aggregate
principal amount of the Old Notes is outstanding. As of , there were
registered holders of the Old Notes, and DTC participants.
Only a holder of the Old Notes (or such holder's legal representative or
attorney-in-fact) may participate in the applicable Exchange Offer. The record
date for determining holders of the Old Note entitled to participate in the
applicable Exchange Offer will be the day before the notice of the Exchange
Offer is sent to Noteholders. The Issuer believes that, as of the date of this
Prospectus, no holder of Old Note is an affiliate (as defined in Rule 405 under
the Securities Act) of the Issuer.
The Issuer shall be deemed to have accepted validly tendered Old Notes
when, as and if the Issuer has notified the Exchange Agent. The Exchange Agent
will act as agent for the tendering holders of Old Notes and for the purposes of
receiving the New Notes from the Issuer. If any tendered Old Notes are not
accepted for exchange because of an invalid tender, the occurrence of certain
other events set forth herein or otherwise, certificates for any such unaccepted
Old Notes will be returned, without expense, to the tendering holder thereof as
promptly as practicable after the Expiration Date.
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EXPIRATION DATES; EXTENSIONS; AMENDMENTS
The Expiration Date shall be , 1998, at 5:00 p.m., New York City
time, unless the Issuer, in its sole discretion, extends the Exchange Offer, in
which case the Expiration Date shall be the latest date and time to which the
Exchange Offer is extended. In order to extend the Exchange Offer, the Issuer
will notify the Exchange Agent of any extension by oral or written notice and
will make a public announcement thereof, each prior to 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date.
The Issuer reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, (ii) to extend the Exchange Offer and (iii) to amend
the terms of the Exchange Offer in any manner. If the Exchange Offer is amended
in a manner determined by the Issuer to constitute a material change, the Issuer
will promptly disclose such amendments by means of a prospectus supplement that
will be distributed to the registered holders of the Old Notes subject to the
Exchange Offer. Modifications of the Exchange Offer, including but not limited
to extension of the period during which the Exchange Offer is open, may require
that at least five business days remain in the Exchange Offer.
Without limiting the manner in which the Company may choose to publicly
announce any delay in acceptance, extension, termination or amendment of the
Exchange Offer, the Company shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by timely release
to the Dow Jones News Service.
CONDITIONS OF THE EXCHANGE OFFER
The Exchange Offer is not conditioned upon any minimum principal amount of
the Old Notes being tendered for exchange. However, the Exchange Offer is
conditioned upon the Commission's declaring the effectiveness of the
Registration Statement of which this Prospectus constitutes a part.
ACCRUED INTEREST
Cash interest on the New Notes will not accrue on the Notes prior to July
31, 2001. The Notes will accrete at a rate of 13.875%, compounded semi-annually
to an aggregate principal amount of $125.0 million by July 31, 2001. Thereafter,
interest on the New Notes will be payable semi-annually on January 31 and July
31 of each year commencing January 31, 2002. See "Description of the
Notes -- Maturity, Interest and Principal."
PROCEDURES FOR TENDERING OLD NOTES
The tender of a holder's Old Notes as set forth below and the Issuer's
acceptance will constitute a binding agreement between the tendering holder and
the Issuer upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal. Except as set forth
below, a holder who wishes to tender Old Notes for exchange pursuant to the
applicable Exchange Offer must transmit such Old Notes, together with a properly
completed and duly executed Letter of Transmittal, including all other documents
required by such Letter of Transmittal, to the Exchange Agent at the address set
forth on the back cover page of this Prospectus prior to 5:00 p.m., New York
City time, on the Expiration Date. THE METHOD OF DELIVERY OF SERIES A NOTES,
LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND
RISK OF THE HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED.
INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT THE HOLDER USE AN OVERNIGHT
OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ENSURE TIMELY DELIVERY.
Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may use book-entry delivery of the Old Notes by
directing DTC to transfer such Old Notes into the Exchange Agent's account in
accordance with DTC's procedures for such transfer. In connection with a
book-entry transfer, a
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Letter of Transmittal need not be transmitted to the Exchange Agent, provided
that the book-entry transfer procedure is made in accordance with DTC's ATOP (as
defined below) procedures for transfer and such procedures are complied with
prior to 5:00 a.m., New York City time, on the Expiration Date.
DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through DTC. To accept the applicable Exchange Offer
through ATOP, participants in DTC must send electronic instructions to DTC
through DTC's communication system, prior to 5:00 p.m., New York City time, on
the Expiration Date (in place of sending an executed Letter of Transmittal). DTC
is obligated to communicate those electronic instructions sent to DTC and
transmitted by DTC to the Exchange Agent by an "Agent's Message." To tender Old
Notes through ATOP, the electronic instructions sent to DTC and forwarded to the
Exchange Agent must contain the participant's acknowledgment of its receipt of
and agreement to be bound by the Letter of Transmittal for such Old Notes.
Each signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant hereto are tendered (i) by a registered holder of the Old Notes who has
not completed either the box entitled "Special Exchange Instructions" in the
Letter of Transmittal, or (ii) by an Eligible Institution (as defined below). In
the event that a signature on a Letter of Transmittal or a notice of withdrawal,
as the case may be, is required to be guaranteed, such guarantee must be by a
firm which is a member of a registered national securities exchange or the
National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office or correspondent in the United States or otherwise be
an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Exchange Act (collectively, "Eligible Institutions"). If the Letter of
Transmittal is signed by a person other than the registered holder of the Old
Notes, the Old Notes surrendered for exchange must either (i) be endorsed by the
registered holder, with the signature thereon guaranteed by an Eligible
Institution or (ii) be accompanied by a bond power, in satisfactory form as
determined by the Issuer in its sole discretion, duly executed by the registered
holder, with the signature thereon guaranteed by an Eligible Institution. The
term "registered holder" as used herein with respect to the Old Notes means any
person in whose name the Old Notes are registered on the books of the Registrar.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of Old Notes tendered for exchange will be
determined by the Issuer in its sole discretion, which determination shall be
final and binding. The Issuer reserves the absolute right to reject any and all
Old Notes not properly tendered and to reject any Old Notes the Issuer's
acceptance of which might, in the judgment of the Issuer or its counsel, be
unlawful. The Issuer also reserves the absolute right to waive any defects or
irregularities or conditions of the applicable Exchange Offer as to particular
Old Notes either before or after the Expiration Date (including the right to
waive the ineligibility of any holder who seeks to tender Old Note in such
Exchange Offer). The interpretation of the terms and conditions of the Exchange
Offer (including the Letter of Transmittal and the instructions thereto) by the
Issuer shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes for exchange must be
cured within such period of time as the Issuer shall determine. The Issuer will
use reasonable efforts to give notification of defects or irregularities with
respect to tenders of Old Notes for exchange but shall not incur any liability
for failure to give such notification. Tenders of the Old Notes will not be
deemed to have been made until such irregularities have been cured or waived.
If any Letter of Transmittal, endorsement, bond power, power of attorney or
any other document required by the Letter of Transmittal is signed by a trustee,
executor, corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and, unless waived by the
Issuer, proper evidence satisfactory to the Issuer, in its sole discretion, of
such person's authority to so act must be submitted.
Any beneficial owner of the Old Notes (a "Beneficial Owner") whose Old
Notes are registered in the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender Old Notes in the applicable
Exchange Offer should contact such registered holder promptly and instruct such
registered holder to tender on such Beneficial Owner's behalf. If such
Beneficial Owner wishes to tender directly, such Beneficial Owner must, prior to
completing and executing the Letter of Transmittal and tendering Old Notes, make
appropriate arrangement to register ownership of the Old Notes in such
Beneficial
21
<PAGE> 27
Owner's name. Beneficial Owners should be aware that the transfer of registered
ownership may take considerable time.
By tendering, each registered holder will represent to the Issuer that,
among other things, (i) the New Notes to be acquired in connection with the
applicable Exchange Offer by the holder and each Beneficial Owner of the Old
Notes are being acquired by the holder and each Beneficial Owner in the ordinary
course of business of the holder and each Beneficial Owner, (ii) the holder and
each Beneficial Owner are not participating, do not intend to participate, and
have no arrangement or understanding with any person to participate, in the
distribution of the New Notes, (iii) the holder and each Beneficial Owner
acknowledge and agree that any person participating in such Exchange Offer for
the purpose of distributing the New Notes must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction of the New Notes acquired by such person and cannot
rely on the position of the staff of the Commission set forth in non-action
letters that are discussed herein under "Resales of New Notes," (iv) that if the
holder is a broker-dealer that acquired Old Notes as a result of market making
or other trading activities, it will deliver a prospectus in connection with any
resale of New Notes acquired in such Exchange Offer, (v) the holder and each
Beneficial Owner understand that a secondary resale transaction described in
clause (iii) above should be covered by an effective registration statement
containing the selling security holder information required by item 507 of
Regulation S-K of the Commission, and (vi) neither the holder nor any Beneficial
Owner is an "affiliate," as defined under Rule 405 of the Securities Act, of the
Issuer except as otherwise disclosed to the Issuer in writing. In connection
with a book-entry transfer, each participant will confirm that it makes the
representations and warranties contained in the Letter of Transmittal.
LETTERS OF TRANSMITTAL AND OLD NOTES MUST BE SENT ONLY TO THE EXCHANGE
AGENT. DO NOT SEND LETTERS OF TRANSMITTAL OR OLD NOTES TO THE COMPANY OR TO THE
DTC.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes or any other
documents required by the Letter of Transmittal to the Exchange Agent prior to
the Expiration Date (or complete the procedure for book-entry transfer on a
timely basis), may tender their Old Notes according to the guaranteed delivery
procedures set forth in the Letter of Transmittal. Pursuant to such procedures:
(i) such tender must be made by or through an eligible Institution and a Notice
of Guaranteed Delivery (as defined in the Letter of Transmittal) must be signed
by such Holder, (ii) on or prior to the Expiration Date, the Exchange Agent must
have received from the Holder and the Eligible Institution a properly completed
and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail
or hand delivery) setting forth the name and address of the Holder, the
certificate number or numbers of the tendered Old Notes, and the principal
amount of tendered Old Notes, stating that the tender is being made thereby and
guaranteeing that, within five New York Stock Exchange trading days after the
date of delivery of the Notice of Guaranteed Delivery, the tendered Old Notes, a
duly executed Letter of Transmittal and any other required documents will be
deposited by the Eligible Institution with the Exchange Agent; and (iii) such
properly completed and executed documents required by the Letter of Transmittal
and the tendered Old Notes in proper form for transfer (or confirmation of a
book-entry transfer of such Old Notes into the Exchange Agent's account at DTC)
must be received by the Exchange Agent within five New York Stock Exchange
trading days after the Expiation Date. Any Holder who wishes to tender Old Notes
pursuant to the guaranteed delivery procedures described above must ensure that
the Exchange Agent receives the Notice of Guaranteed Delivery and letter of
Transmittal relating to such Old Notes prior to 5:00 p.m., New York City time,
on the Expiration Date. DTC participants may also submit the Notice of
Guaranteed Delivery through ATOP.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all the conditions to an Exchange Offer, the
Issuer will accept any and all Old Notes that are properly tendered in such
Exchange Offer prior to 5:00 p.m., New York City time, on the
22
<PAGE> 28
Expiration Date. The New Notes issued pursuant to the Exchange Offer will be
delivered promptly after acceptance of the Old Notes. For purposes of the
Exchange Offer, the Issuer shall be deemed to have accepted validly tendered Old
Notes when, as, and if the Issuer has given oral or written notice thereof to
the Exchange Agent.
In all cases, issuances of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of such Old Notes, a properly completed and duly executed
Letter of Transmittal and all other required documents (or of confirmation of a
book-entry transfer of such Old Notes into the Exchange Agent's account at DTC);
provided, however, that the Issuer reserves the absolute right to waive any
defects or irregularities in the tender or conditions of the Exchange Offer. If
any tendered Old Notes are not accepted for any reason, such unaccepted Old
Notes will be returned without expense to the tendering Holder thereof as
promptly as practicable after the expiration or termination of the Exchange
Offer.
WITHDRAWAL RIGHTS
Tenders of the Old Notes may be withdrawn by delivery of a written notice
(or for DTC participants, transmission of notice through ATOP) to the Exchange
Agent, at its address set forth on the back cover page of this Prospectus, at
any time prior to 5:00 p.m., New York City time, on the applicable Expiration
Date. Any such notice of withdrawal must (i) specify the name of the person
having deposited the Old Note to be withdrawn (the "Depositor"), (ii) identify
the Old Notes to be withdrawn (including the certificate number or numbers and
principal amount of such Old Notes, as applicable); (iii) be signed by the
Holder in the same manner as the original signature on the Letter of Transmittal
by which such Old Notes were tendered (including any required signature
guarantees) or be accompanied by a bond power in the name of the person
withdrawing the tender, in satisfactory form as determined by the Issuer in its
sole discretion, duly executed by the registered holder, with the signature
thereon guaranteed by an Eligible Institution together with the other documents
required upon transfer by the Indenture; and (iv) specify the name in which such
Old Notes are to be re-registered, if different from the Depositor, pursuant to
such documents of transfer. Any questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Issuer, in its sole discretion. The Old Notes so withdrawn will be deemed
not to have been validly tendered for exchange for purposes of the applicable
Exchange Offer. Any Series A Notes which have been tendered for exchange but
which are withdrawn will be returned to the Holder thereof without cost to such
Holder as soon as practicable after withdrawal. Properly withdrawn Old Notes may
be re-tendered by following one of the procedures described under "-- Procedure
for Tendering Old Notes" at any time on or prior to the Expiration Date.
TERMINATION
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange New Notes for any Old Notes not
theretofore accepted for exchange, and may terminate or amend the Exchange Offer
as provided herein before the acceptance of such Old Notes if: (i) any action or
proceeding is instituted or threatened in any court of by or before any
governmental agency with respect to the Exchange Offer, which, in the Company's
judgment, might materially impair the Company's ability to proceed with the
Exchange Offer or (ii) any law, statute, rule or regulation is proposed, adopted
or enacted, or any existing law, statute, rule or regulation is interpreted by
the staff of the commission in a manner, which, in the Company's judgment, might
materially impair the Company's ability to proceed with the Exchange Offer.
If the Company determines that it may terminate the Exchange Offer, as set
forth above, the Company may (i) refuse to accept any Old Notes and return any
Old Notes that have been tendered to the holders thereof, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of the
Exchange Offer, subject to the rights of such holders of tendered Old Notes to
withdraw their tendered Old Notes, or (iii) waive such termination event with
respect to the Exchange Offer and accept all properly tendered Old Notes that
have not been withdrawn. If such waiver constitutes a material change in the
Exchange Offer, the Company will disclose such change by means of a supplement
to this Prospectus that will
23
<PAGE> 29
be distributed to each registered holder of Old Notes, and the Company will
extend the Exchange Offer for a period of five business days, depending upon the
significance of the waiver and the manner of disclosure to the registered
holders of the Old Notes, if the Exchange Offer would otherwise expire during
such period.
THE EXCHANGE AGENT; ASSISTANCE
State Street Bank is the Exchange Agent. All tendered Old Notes, executed
Letters of Transmittal and other related documents should be directed to the
Exchange Agent. Questions and requests for assistance and requests for
additional copies of the Prospectus, the Letter of Transmittal and other related
documents should be addressed to the Exchange Agent as follows:
By Hand, or Overnight Courier:
STATE STREET BANK
---------------------
---------------------
---------------------
Facsimile Transmissions (Eligible Institutions Only):
---------------------
To confirm by telephone or for information call:
---------------------
By Mail:
STATE STREET BANK
---------------------
---------------------
---------------------
FEES AND EXPENSES
All expenses incident to the Issuer's consummation of the Exchange Offer
and compliance with the Registration Rights Agreement will be borne by the
Issuer, including, without limitation: (i) all applicable Securities and
Exchange Commission, stock exchange or National Association of Securities
Dealers, Inc. ("NASD") registration and filing fees; (ii) all fees and expenses
incurred in connection with compliance with state securities or blue sky laws
(including reasonable fees and disbursements of one counsel for holders that are
Initial Purchasers in connection with blue sky qualifications of any of the New
Notes) and compliance with the rules of the NASD; (iii) all applicable expenses
incurred by the Issuer in preparing or assisting in preparing, word processing,
printing and distributing any registration statement, any prospectus and any
amendments or supplements thereto, and in preparing or assisting in preparing
any other documents relating to the performance of and compliance with the
Registration Rights Agreement; (iv) all rating agency fees, if any; and (v) the
fees and disbursements of counsel for the Issuer.
The Issuer has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers of others
soliciting acceptance of the Exchange Offer. The Issuer, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
24
<PAGE> 30
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
as reflected in the Issuer's accounting records on the date of the exchange.
Accordingly, no gain or loss will be recognized by the Issuer for accounting
purposes. The expenses of the Exchange Offer will be amortized over the term of
the respective New Notes.
RESALES OF THE NEW NOTES
Based on the position of the staff of the Commission as set forth in
certain interpretive letters issued to third parties in other transactions, the
Issuer believes that the New Notes issued pursuant to the Exchange Offer to any
holder of Old Notes in exchange for New Notes may be offered for resale, resold
and otherwise transferred by such holder (other than (i) a broker-dealer who
purchased Old Notes directly from the Issuer for resale pursuant to Rule 144A
under the Securities Act or any other available exemption under the Securities
Act, or (ii) a person that is an affiliate of the Issuer within the meaning of
Rule 405 under the Securities Act) without further compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such holder is acquiring the New Notes in the ordinary course of business
and is not participating and has no arrangement or understanding with any person
to participate, in the distribution of the New Notes. However, the Issuer has
not sought its own interpretive letter and there can be no assurance that the
Commission would make a similar determination with respect to the Exchange
Offer. The Issuer and holders of Old Notes are not entitled to rely on
interpretive advice provided by the staff of other persons, which advice was
based on the facts and conditions represented in such letters. However, the
Exchange Offer is being conducted in a manner intended to be consistent with the
facts and conditions represented in such letters. If any holder acquires New
Notes in an Exchange Offer for the purpose of distributing or participating in a
distribution of the New Notes, such holder cannot rely on the position of the
staff of the Commission enunciated in Morgan Stanley & Co. Incorporated
(available June 5, 1991) and Exxon Capital Holdings Corporation (available May
13, 1989) or interpreted in the Commission's letter to Shearman and Sterling
(available July 2, 1993), or similar no-action or interpretive letters and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction, unless an
exemption from registration is otherwise available. Each broker-dealer that
receives New Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such broker-dealer as a result of market making or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See "Plan of Distribution."
It is expected that the New Notes will be freely transferable by the
holders thereof, subject to the limitations described in the immediately
preceding paragraph. Sales of New Notes acquired in the Exchange Offer by
holders who are "affiliates" of the Issue within the meaning of the Securities
Act will be subject to certain limitations on resale under Rule 144 of the
Securities Act (if applicable). Such persons will only be entitled to sell New
Notes in compliance with the volume limitations set forth in Rule 144, and sales
of New Notes by affiliates will be subject to certain Rule 144 requirements as
to the manner of sale, notice and the availability of current public information
regarding the Issuer. The foregoing is a summary only of Rule 144 as it may
apply to affiliates of the Issuer. Any such persons must consult their own legal
counsel for advice as to any restrictions that might apply to the resale of
their New Notes.
USE OF PROCEEDS
There will be no cash proceeds payable to the Company from the issuance of
the New Notes pursuant to the Exchange Offer. The Company received net proceeds
from the Initial Note Offering of approximately $78.1 million, after deducting
the Initial Purchaser's discount and estimated fees and expenses. With those net
proceeds, the Company repaid a $12 million Bridge Loan from Comdisco, Inc., and
intends to use the remainder to fund operating losses, to expand the TeleHub
network, for additional working capital and for other general corporate
purposes. The amounts actually expended by the Company for working capital will
depend upon several factors, including future revenue growth, the amount of cash
generated by the Company's operations and the progress of the Company's product
development efforts. The Company may also use a
25
<PAGE> 31
portion of such net proceeds to acquire or invest in businesses, products and
technologies that are complementary to those of the Company; however, no
specific acquisitions are planned at this time and no portion of the net
proceeds has been allocated for any particular acquisition. Pending these uses,
the Company intends to invest those net proceeds in short-term,
interest-bearing, U.S. investment-grade and government securities.
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Note Registration Rights Agreement. In consideration for
issuing the New Notes as contemplated in this Prospectus, the Issuer will
receive in exchange Old Notes in like principal amount, the form and terms of
which are the same in all material respects as the form and terms of the New
Notes except that the New Notes will be registered under the Securities Act and
hence do not include certain rights to registration thereunder. The Old Notes
surrendered in exchange for New Notes will be retired and canceled and cannot be
reissued. Accordingly, issuance of the New Notes will not result in any increase
in the indebtedness of the Company.
DIVIDEND POLICY
The Company has not paid dividends on its Common Stock and Preferred Stock,
and the Board intends to continue a policy of retaining earnings to finance its
growth and for general corporate purposes. The Indenture limits the Company's
ability to pay cash dividends. In addition, the Company's future loan agreements
could limit the Company's ability to pay cash dividends. The Company does not
anticipate paying any dividends in the foreseeable future.
26
<PAGE> 32
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1998, and as adjusted to reflect the Initial Note Offering. This table
should be read in conjunction with the "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Consolidated Financial Statements and the related notes thereto
contained elsewhere herein.
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------
ACTUAL AS ADJUSTED(1)
------------ --------------
(UNAUDITED)
<S> <C> <C>
Cash, cash equivalents and restricted cash.................. $ 5,760,018 $ 71,816,268
============ ============
Current portions of long-term debt and capital leases....... $ 2,338,897 $ 2,338,897
Long-term debt.............................................. 9,815,312 9,815,312
13 7/8% Senior Discount Notes due 2005(2)................... -- 83,553,750
Debt discount............................................... -- (22,260,678)
------------ ------------
Total debt........................................ 12,154,209 73,447,281
------------ ------------
Stockholders' equity:
Preferred stock........................................... 3,500 3,500
Common stock.............................................. 12,634 12,634
Common stock warrants..................................... 1,831,234 24,091,912
Additional paid-in capital................................ 38,613,919 38,613,919
Note receivable -- employee(3)............................ (250,000) (250,000)
Deferred compensation..................................... (207,242) (207,242)
Deficit accumulated during development stage.............. (29,974,922) (29,974,922)
------------ ------------
Total stockholders' equity........................ 10,029,123 32,289,801
------------ ------------
Total capitalization.............................. $ 22,183,332 $105,737,082
============ ============
</TABLE>
- ---------------
(1) "As Adjusted" gives effect to the Initial Note Offering and the net proceeds
therefrom, less approximately $12 million to be used to repay the Bridge
Loan. Based on the assumptions used for the Initial Note Offering, a value
of $22.3 million has been ascribed to the Warrants. The value ascribed to
the Warrants will result in Debt Discount, which will be amortized to
interest expense using the effective interest method over the period that
the Notes are outstanding.
(2) The Notes are presented net of Debt Discount and will accrete in value
through July 31, 2001 at a rate of 13 7/8% per annum compounded
semi-annually. No interest will be payable in cash on the Notes prior to
January 31, 2002.
(3) The Company loaned $250,000 to its Chief Financial Officer secured by a
warrant exercisable for the purchase of 150,000 shares of Common Stock. This
loan was repaid in May 1998.
27
<PAGE> 33
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the period from
inception (January 18, 1996) to December 31, 1996, for the year ended December
31, 1997 and for the three months ended March 31, 1997 have been derived from
the Consolidated Financial Statements which have been audited by
PricewaterhouseCoopers LLP., independent accountants. The selected data as of
and for the three months ended March 31, 1998 have been derived from unaudited
consolidated financial statements of the Company and, in the opinion of the
Company, include all adjustments, consisting of normal recurring accruals
necessary for a fair presentation of such information. Operating results for the
three months ended March 31, 1998 are not necessarily indicative of the results
that may be expected for the entire year. The following selected consolidated
financial data should be read in conjunction with "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and the related notes
thereto included elsewhere in this Offering Memorandum.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
INCEPTION TO YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, -------------------------
1996 1997 1997 1998
------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................... $ -- $ 2,901,280 $ -- $ 3,006,601
Operating expenses(1)...................... 3,667,319 19,483,912 1,680,621 9,173,827
Depreciation and amortization.............. 68,556 784,548 54,618 1,025,356
----------- ------------ ----------- -----------
Operating loss................. (3,735,875) (17,367,180) (1,735,239) (7,192,582)
Amortization of debt discount.............. (85,375) (546,875) (546,875) --
Interest expense, net(2)................... (66,973) (213,658) (14,375) (202,348)
Other income (expense)(3).................. (599,950) 34,889 38 1,005
----------- ------------ ----------- -----------
Net loss(4).................... $(4,488,173) $(18,092,824) $(2,296,451) $(7,393,925)
=========== ============ =========== ===========
Basic and diluted loss per share(5)........ $ (0.52) $ (1.70) $ (0.23) $ (0.59)
Weighted average shares outstanding used in
per share calculations -- basic and
diluted.................................. 8,614,815 10,624,251 10,022,413 12,634,450
OTHER FINANCIAL DATA:
EBITDA(6).................................. $(3,667,319) $(16,582,632) $(1,680,621) $(6,167,226)
Capital expenditures....................... 3,028,715 18,221,327 12,082,857 1,280,301
Ratio of earnings to fixed charges(7)...... -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF MARCH 31, 1998,
1998 AS ADJUSTED(8)
--------------- ---------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and restricted cash.................. $ 5,760,018 $ 71,816,268
Total assets................................................ 28,094,720 94,150,970
Total debt, including current portions(9)................... 12,154,209 73,447,281
Stockholders' equity........................................ 10,029,123 32,289,801
</TABLE>
- ---------------
See footnotes on following page.
28
<PAGE> 34
(1) Operating expenses consist of total operating expenses less depreciation
and amortization.
(2) Interest expense, net consists of the sum of interest expense and interest
income.
(3) Other income (expense) consists of the sum of indemnification expense and
other income.
(4) The Company has not recorded any benefit for income taxes due to the
uncertainty surrounding the realization of the favorable tax attributes in
future tax returns. Accordingly, the Company has recorded a valuation
allowance against its total net deferred tax assets.
(5) The Company computes loss per share pursuant to Statement of Financial
Accounting Standard No. 128, Earnings Per Share. The dilutive effect of
options, warrants, and the Preferred Stock have not been considered as
their effect would have been antidilutive for all periods presented. See
Note 15 to the Consolidated Financial Statements.
(6) EBITDA consists of operating loss before depreciation and amortization.
EBITDA is presented to enhance an understanding of the Company's operating
results and is not intended to represent cash flow or results of operations
in accordance with generally accepted accounting principles for the periods
indicated and may be calculated differently than similarly titled measures
for other companies.
(7) For purposes of calculating ratio of earnings to fixed charges, earnings
consist of earnings (losses) before fixed charges. Fixed charges consist of
interest on debt, amortization of deferred financing costs, and that
portion of rental expense the Company believes to be representative of
interest (i.e., one third rent expense). For the period from January 18,
1996 (inception) to December 31, 1996, for the year ended December 31, 1997
and for the three months ended March 31, 1998, the Company's earnings were
insufficient to cover its fixed charges by $3.7 million, $14.4 million and
$5.6 million respectively. On a pro forma basis, after giving effect to the
Initial Note Offering (assuming an annual interest rate on the Notes of
13 1/2% per annum), the Company's earnings would have been insufficient to
cover fixed charges by $18.6 million, $31.9 million and $10.4 million,
respectively, for such periods.
(8) "As Adjusted" gives effect to the Initial Note Offering and the net
proceeds therefrom less approximately $12 million to be used to repay the
Bridge Loan. Based on the assumption used for the Initial Note Offering, a
value of $22.3 million has been ascribed to the Warrants. The value
ascribed to the Warrants will result in Debt Discount, which will be
amortized to interest expense using the effective interest method over the
period that the Notes are outstanding.
(9) Total debt, including current portions, consists of capital lease
obligations and other long-term debt, including current portions. The Notes
are presented net of Debt Discount and will accrete in value through July
31, 2001 at a rate of 13 7/8% per annum compounded semi-annually. No
interest will be payable in cash on the Notes prior to January 31, 2002.
29
<PAGE> 35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and related notes thereto included elsewhere
in this Prospectus. The results shown herein are not necessarily indicative of
the results to be expected in any future periods. This discussion contains
forward-looking statements based on current expectations which involve risks and
uncertainties. Actual results and timing of certain events may differ
significantly from those projected in such forward-looking statements due to a
number of factors, including those set forth in the section entitled "Risk
Factors" and elsewhere in this Prospectus.
OVERVIEW
After three years of research and development, the Company was formed in
January 1996. The Company has developed what it believes is the first universal
ATM-based network with the potential to integrate the delivery of voice, data
and video on one network. The Company launched commercial voice services on its
network in December 1997 and since then has entered into seventeen contracts,
ranging from one to three year terms, to provide interstate and intrastate long
distance services to switchless resellers. As customers transition their traffic
onto TeleHub's network, the Company expects significant growth in revenues. The
Company expects that as revenues increase, the variable costs associated with
operating the TeleHub network should decline as a percentage of total revenues,
and accordingly margins will improve. The Company believes that the TeleHub
network should have positive EBITDA at approximately $15 million a month in
revenues, although there is no assurance that the Company will be able to
achieve such revenues. Additionally, the Company has signed several memoranda of
understanding and has distributed several proposals to license its VASP(TM)
services. The Company expects to license its technology to multiple carriers and
OEMs by the end of 1998. The Company expects significant growth in revenues from
the licensing of VASP(TM) over the next two years. The foregoing expectations
are forward-looking statements that involve risks and uncertainties, and actual
results could vary as a result of a number of factors including the Company's
operating results, the results and timing of the Company's launch of new
products and services, governmental, legislative or regulatory changes, the
ability of the Company to meet product and project demands, the success of the
Company's marketing efforts, competition and acquisitions of complementary
businesses, technologies or products.
Since inception, the Company has incurred net losses and experienced
negative cash flow from operations and expects to continue to operate at a net
loss and to experience negative cash flow at least through 1998. However, the
Company's ability to achieve profitability and positive cash flow from
operations is dependent upon the Company's ability to substantially grow its
revenues and achieve other operating efficiencies. The Company experienced net
losses of approximately $4.5 million and $18.1 million for the period from
January 18, 1996 through December 31, 1996 and for the year ended December 31,
1997, respectively. At December 31, 1997, the Company had approximately $9.2
million of net deferred tax assets comprised primarily of start up costs which
are capitalized for tax purposes and net operating loss carry-forwards. Due to
uncertainty of realization, a valuation allowance has been provided to eliminate
the net deferred tax asset at both December 31, 1997 and 1996. Pursuant to the
provisions of the Tax Reform Act of 1986 (the "Tax Reform Act"), utilization of
the net operating loss carryforwards may be subject to an annual limitation as
defined in the Tax Reform Act. Furthermore, the Company believes that it is more
likely than not that it will not generate taxable income through 1998, and
possibly beyond, and accordingly will not realize the Company's deferred tax
assets through 1998, and possibly beyond. The Company will continue to assess
the realizability of the deferred tax assets based on actual and forecasted
operating results. See Note 5 to the Consolidated Financial Statements.
To fund its operations, the Company has raised gross proceeds of
approximately $43.5 million of equity capital through two private placements
(the "Spring 1997 Offering" and the "Fall 1997 Offering") and an equity
investment from an affiliate of the Initial Purchaser. In addition, the Company
has incurred debt financing through both operating and capital leases relating
to the purchase of network equipment and, further the Company has obtained a $12
million Bridge Loan from an affiliate. See "Certain Relationships and
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Related Transactions." A portion of the proceeds from the Initial Note Offering
were used to repay this Bridge Loan.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31,
1997
Revenues
Revenues totaled $3.0 million for the three months ended March 31, 1998.
There was no revenue for the three months ended March 31, 1997. TTC licensed
VASP(TM) to Newbridge for $5.0 million, $3.0 million of which was received and
recorded during the three months ended March 31, 1998, and TNS generated $6,600
of revenue from network operations during the three months ended March 31, 1998.
Operating expenses
Operating expenses increased approximately $7.5 million to $9.2 million
from $1.7 million for the three months ended March 31,1998 and 1997,
respectively. This reflects a significant increase in personnel costs, monthly
recurring network circuit costs, network equipment lease payments, consulting
services, facility costs, and professional fees. Higher personnel costs reflect
an increase in headcount from twenty as of March 31, 1997 to 125 as of March 31,
1998. Increased operating costs were necessary to continue the development of
the Company's product and service offerings, to expand the network to
efficiently handle anticipated subscriber traffic, and to manage the financial
and administrative aspects of the business.
Depreciation and amortization
Depreciation and amortization expense increased approximately $971,000 to
$1.0 million from $55,000 for the three months ended March 31, 1998 and 1997,
respectively. This increase reflects significant capital expenditures incurred
since January 1, 1997. The capital expenditures were primarily for network
equipment, leasehold improvements, computer equipment and vendor software.
Amortization of debt discount
There was no amortization of debt discount for the three months ended March
31, 1998. For the three months ended March 31, 1997, amortization of debt
discount was $547,000, which related to premiums paid to Hartford Holdings Ltd.
("HHL") in connection with the settlement of all outstanding bridge loans and
notes issued to the Company.
Interest expense, net
Net interest expense increased approximately $188,000 to $202,000 from
$14,000 for the three months ended March 31, 1998 and 1997, respectively. Gross
interest expense increased approximately $243,000 due to the Company's capital
lease obligations for network equipment, furniture and fixtures. This increase
was partially offset by an increase in interest income of approximately $55,000
which was the result of increased cash and equivalent balances available for
short term investments.
Net loss
The Company reported a net loss of $7.4 million and $2.3 million for the
three months ended March 31, 1998 and March 31, 1997, respectively. The Company
has not recorded any benefit for income taxes due to the uncertainty surrounding
the realization of the favorable tax attributes in future tax returns.
Accordingly, the Company has recorded a valuation allowance against its total
net deferred tax assets.
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YEAR ENDED DECEMBER 31, 1997 COMPARED TO PERIOD FROM JANUARY 18, 1996
(INCEPTION)
TO DECEMBER 31, 1996
Revenues
The Company commercially introduced its services in December 1997. Revenues
were first recognized in 1997 for licensing fees, consulting services and
network services. Revenues for the year ended December 31, 1997 were $2.9
million. The Company received and recorded $2.0 million in November 1997 under a
licensing agreement with Newbridge, recognized $900,000 for consulting services
and generated $1,300 of network revenues in December 1997. No revenues were
generated during the period from January 18, 1996 (inception) to December 31,
1996.
Operating expenses
Total operating expenses increased approximately $15.8 million to $19.5
million from $3.7 million for the year ended December 31, 1997 and the period
from January 18, 1996 (inception) to December 31, 1996, respectively. The
significant increase reflects the implementation of the Company's business plan
which resulted in accelerated development efforts and network expansion and
build-out, as well as infrastructure growth of the Company.
Depreciation and amortization
Depreciation and amortization expense increased approximately $716,000 to
$784,000 from $68,000 for the year ended December 31, 1997 and the period from
January 18, 1996 (inception) to December 31, 1996, respectively. This reflects
significant capital expenditures made in 1997, primarily for network equipment
and leasehold improvements relating to the build out of the network, including
three switch sites located in Chicago, Los Angeles and New York.
Amortization of debt discount
Amortization of debt discount increased approximately $462,000 to $547,000
from $85,000 for the year ended December 31, 1997 and the period from January
18, 1996 (inception) to December 31, 1996, respectively. Amortization of debt
discount is related to premiums paid to HHL in connection with the settlement of
all outstanding bridge loans and notes issued to the Company. The Company began
amortizing the total premiums of $632,000 during the fourth quarter of 1996. The
remaining unamortized balance of the debt discount was paid during the first
quarter of 1997 when these obligations were settled.
Interest expense, net
Net interest expense increased approximately $147,000 to $214,000 from
$67,000 for the year ended December 31, 1997 and the period from January 18,
1996 (inception) to December 31, 1996, respectively. Gross interest expense
increased approximately $453,000 primarily due to increased capital lease
balances associated with the purchase of three switching platforms. This
increase was partially offset by interest income during the year ended December
31, 1997 of $306,000 related to higher cash and equivalents balances.
Other income (expense)
Other income was $35,000 for the year ended December 31, 1997 as compared
to other expense of $600,000 for the period from January 18, 1996 (inception) to
December 31, 1996. In 1996, other expense related to the termination of a
proposed merger whereby the Company indemnified HHL from certain claims and
liabilities. The Company issued a note payable to HHL for $600,000 which was
later settled through the issuance of Preferred Stock. See "Certain
Relationships and Related Transactions."
Net loss
Net loss increased approximately $13.6 million to $18.1 million from $4.5
million for the year ended December 31, 1997 and the period from January 18,
1996 (inception) to December 31, 1996, respectively.
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LIQUIDITY AND CAPITAL RESOURCES
To date the Company has satisfied its cash requirements primarily through
lease financing, the sale of capital stock, loans from affiliates and the
Initial Note Offering. The Company's principal uses of cash are to fund working
capital requirements and capital expenditures and to service its lease financing
obligations.
For the three months ended March 31, 1998, net cash used for operating
activities was $4.6 million primarily related to net losses, offset by increases
in accounts payable and accrued liabilities. Net cash used by the Company for
continued network equipment investments and third-party software expenditures
was $1.1 million during the three months ended March 31, 1998. The Company
obtained additional capital lease financing of $83,000 during the first quarter
of 1998. Total payments on capital lease obligations and long-term debt were
approximately $528,000 during the first quarter of 1998. The Company is
committed to make payments under various operating leases. See Note 6 to the
Consolidated Financial Statements.
Subsequent to March 31, 1998, the Company obtained the Bridge Loan from
Comdisco and an affiliate of the Initial Purchaser agreed to make an equity
investment of $1.0 million in the Company. The Company used approximately $12.0
million of the net proceeds from the Initial Note Offering to fully repay the
Bridge Loan.
The Company expects to incur additional operating losses through 1998 and
during 1999. The Company believes that the net proceeds from this Offering will
be sufficient to meet anticipated cash needs for working capital and for the
acquisition of capital equipment for at least the next twelve months. However,
there can be no assurance that the Company will not require additional financing
within this time frame. The Company's forecast of the period of time through
which its financial resources will be adequate to support its operations is a
forward-looking statement that involves risks and uncertainties, and actual
results could vary materially as a result of a number of factors, including
those set forth below under the caption "Risk Factors -- Future Capital Needs;
Uncertainty of Additional Financing." The Company may be required to raise
additional funds through a public or private financing, strategic relationships
or other arrangements. There can be no assurance that such additional funding,
if needed, will be available on terms attractive to the Company, or at all.
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BUSINESS
GENERAL
TeleHub believes it has the only universal ATM-based telecommunications
network in commercial operation that is capable of seamlessly interconnecting
with the PSTN. The Company's first-to-market proprietary software, VASP(TM),
will enable telecommunications service providers to (i) integrate the delivery
of voice, video and data over a single platform; (ii) seamlessly interconnect
with the PSTN; (iii) provide real-time monitoring of telecommunications traffic;
and (iv) facilitate the unbundling of the local loop. The Company's
VASP(TM)-managed ATM network, which began carrying commercial traffic in
December 1997, acts as a "proof of concept" for VASP(TM) and generates revenues
to support the Company's growth.
The Company believes the VASP(TM) platform addresses significant needs
throughout the telecommunications industry for improved systems and less
reliance on legacy hardware. While the legacy network evolved principally for
voice transmission, demand for data, video and advanced voice services has grown
rapidly over the past ten years. The legacy network, designed to handle the
lower bandwidth requirements of voice traffic, has inherent service and cost
inefficiencies when carrying data and video transmissions. In addition, recent
regulatory changes have introduced competition in both local and long distance
telephone services, including the unbundling of the local loop. To be
competitive in this new environment and to meet growing demand for high speed
data and video transmission services, telecommunications carriers are seeking to
enter new markets rapidly and to introduce differentiated services in a
cost-effective manner. Three major carriers, Sprint, AT&T and Bell Atlantic,
have recently announced plans to deploy, over the next two years, voice-over-ATM
services that will interconnect with the PSTN, a service which TeleHub already
offers. In addition, OEMs such as Lucent and Nortel have recently announced
major acquisitions attempting to provide network solutions needed for
transporting carrier-class voice transmissions over more efficient data
networks. The Company believes that its VASP(TM) technology provides ILECs,
CLECs, IXCs and OEMs with the ability to accelerate the introduction of new
products and services, to reduce costs and to enter into new markets rapidly.
TeleHub operates two principal subsidiaries: TTC, which develops the
commercial applications of VASP(TM), and TNS, which operates the Company's ATM
network. TTC is marketing VASP(TM)-based voice and data products to potential
customers in the OEM segment, like Newbridge, Nortel and Cisco, as well as in
the carrier market, including ILECs, CLECs and IXCs. The ability to carry voice
quality transmissions over an ATM backbone, and VASP(TM)'s ability to offer toll
and certain central office switching capabilities on a software basis, open the
multi-billion dollar voice switch market to ATM switch manufacturers. For
example, Newbridge has purchased a "right-to-use" license for a trial system of
VASP(TM) for $5.0 million. In addition, pilot programs for a VASP(TM)-based
virtual local exchange network are expected to commence with two North American
CLECs. Moreover, with future enhancements, the Company expects VASP(TM) to allow
LECs to unbundle the local loop and offer LNP using existing facilities, while
protecting LECs' proprietary customer databases, an issue which management
believes has significantly delayed the implementation of local exchange
competition.
TNS, which utilizes VASP(TM) technology, currently offers wholesale long
distance services to the switchless reseller market. Because of the inherent
efficiencies in carrying voice traffic over an ATM backbone and VASP(TM)'s
ability to seamlessly interconnect that traffic into the PSTN, TNS is able to
offer switched wholesale voice services at rates generally lower than those
currently offered by competing wholesale service providers. As a result,
TeleHub's wholesale customer base has been expanding and, as of July 15, 1998,
includes seventeen switchless resellers. The Company estimates that these
reseller customers will transition approximately one million presubscribed long
distance lines onto TNS's network during 1999. TNS also expects to offer
wholesale long distance services to ILECs, CLECs, ITCs and international
carriers terminating traffic in the United States. TeleHub's network,
interconnected via leased lines from WorldCom, reaches approximately 64% of the
telephone exchanges in the United States directly and the remaining 36% through
contractual relationships with other carriers.
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Management believes that the integration of the VASP(TM) technology on an
ATM backbone provides the following competitive advantages:
- The Company believes that TeleHub's VASP(TM)-enhanced network is the only
publicly-switched ATM network in commercial operation which allows for
seamless interconnection with the PSTN without requiring additional
telephone equipment or modified dialing procedures. A VASP(TM)-enhanced
ATM network allows for increased capacity and efficiencies, thereby
lowering costs as compared to networks utilizing legacy technology.
- When fully deployed, VASP(TM) will allow for dynamic bandwidth
allocation. VASP(TM) will enable TeleHub to replace a customer's fixed
leased-line data network with one which (i) is variable, where the
customer only pays for capacity used, and (ii) can be publicly switched,
and therefore connected nearly anywhere in the United States, which
management believes is an improvement over competitors' existing service
offerings.
- VASP(TM) enables certain call-processing instructions to be moved out of
the LECs' central office, thereby reducing the traditional dependence on
the local exchange switch. The synergy between an ATM-based network and
VASP(TM) enables the delivery of expanded telecommunications services on
a virtual basis without the need for an extensive switching network.
- VASP(TM) provides real-time monitoring of telecommunications traffic, a
feature which the Company believes no other carrier offers. VASP(TM)
allows real-time access to billing information and customer calling
patterns and also provides for electronic order entry and trouble
ticketing. Management believes these capabilities reduce network
downtime, provisioning delays, maintenance costs and operating expenses,
and improve customer service.
- VASP(TM)'s distinct data analysis capabilities and open architecture will
enable carriers to develop and implement new products and services such
as millisecond billing. The open architecture design of the VASP(TM)
software allows carriers to program and deploy these new services more
quickly than legacy systems, which are dependent on time-consuming
hardware vendor modifications.
INDUSTRY OVERVIEW
According to 1996 industry data released by the FCC, the U.S.
telecommunications industry served more than 90 million households and 25
million businesses (approximately 158 million access lines), and generated
revenues approaching $196.3 billion. Telecommunications wireline services are
provided in three principal markets: long distance, local exchange and data
products and services. While VASP(TM)'s technology is applicable to nearly all
aspects of telecommunications services, as well as OEMs who sell their products
to carriers, TNS markets its products and services to customers principally in
the wholesale long distance services market.
The Long Distance Market. The FCC's Statistics of Common Carriers reports
that the domestic long distance industry generated revenue of approximately
$88.6 billion in 1997. The long distance market is comprised of three tiers. The
first tier consists of facilities-based long distance carriers, such as AT&T,
MCI, WorldCom and Sprint, who provide long distance communications services
using their own equipment to transmit telephone calls. These carriers
collectively accounted for approximately 80% of all toll revenues in 1997.
"Second tier" carriers, consisting primarily of switched resellers such as Excel
Communications Inc., Cable and Wireless, plc., LCI International Inc. and
Frontier Corporation ("Frontier"), accounted for approximately 6.0% of toll
revenue in 1997. The remaining market share, or "third tier," is held by smaller
companies primarily consisting of switchless resellers.
TNS is marketing wholesale long distance services, which consist of
providing bulk transmission capacity to resellers. According to the Yankee
Group, wholesale long distance services constitute a market with estimated 1997
revenues of $5.4 billion, growing at a rate approximately between 10% and 15%
annually. The Company estimates that the market for the wholesale "switchless"
resale segment of the wholesale long distance resale market was approximately
$2.4 billion in 1997 and continues to grow at a rate of 10% to 12% annually.
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The Local Exchange Market. According to FCC data, total revenue from local
telecommunications services in 1997 was approximately $103.0 billion. The
Telecommunications Act was enacted in large part to increase competition in the
local telecommunications industry and provide a framework for other carriers to
compete with LECs by reselling local telephone service, leasing unbundled
elements of the ILECs' networks or building new local service facilities. The
Telecommunications Act has created many opportunities for alternative providers
in the local services market. The Company believes that large telecommunications
users will increasingly demand diversity in local telecommunications providers,
as has been the case in long distance and private-line telecommunications
services, and that VASP(TM) will facilitate other carriers' entrance into the
local exchange market and their utilization of unbundled network elements.
The Data Products and Services Market. Data products and services has been
the highest growth segment of the telecommunications industry in the 1990s.
According to Data Communications, data-related products and services accounted
for revenues of almost $79.0 billion in 1997 -- a growth rate of approximately
17% from 1996. According to the Yankee Group, current trends suggest that data
revenues will double over the next three years and will grow five times faster
than voice revenues. TNS is targeting the data market through both private line
and bandwidth-on-demand products, which will be integrated on TeleHub's
VASP(TM)-managed ATM network.
TECHNOLOGY
Circuit, Packet and Cell Switching Technologies
There are three switching technologies used in communications networks:
circuit-switched systems, packet-switched systems and cell-switched systems.
Circuit-switched systems establish a dedicated channel for each communication
(such as a telephone call for voice or facsimile), maintain the channel for the
duration of the call, and disconnect the channel at the conclusion of the call.
Packet-switched communications systems, including voice-over-Internet Protocol
networks, format the information to be transmitted (such as e-mail, voice,
facsimile or data) into a series of shorter digital messages called "packets."
Packet-switched systems offer several advantages over circuit-switched systems,
particularly the ability to commingle packets from several communications
sources simultaneously onto a single channel. Cell-switched technology, which
includes ATM, combines elements of both circuit and packet switching. ATM
closely resembles packet switching in that it breaks a communication
transmission into cells, which are packets of a fixed size, which are then
placed on channels that are shared by several data streams. ATM resembles
circuit switching in that it provides connection-oriented service. Each
connection has a set-up phase, during which a "virtual circuit" is created.
There are many Internet Protocol ("IP") networks currently in operation.
While generally adequate for data transmission needs, these networks usually are
not configured to provide the voice quality of a traditional telephone call.
With current technology, this quality can only be achieved by a combination of a
substantial cushion of communications capacity, customized end-user equipment,
dial-up "access codes," and/or other special procedures to initiate a call.
There are also concerns about the quality, reliability and security of
packet-switched systems. Packets are transported on a first-come, first-served
basis with no guarantee of success. Some packets may experience severe delays,
while others may be dropped and never arrive. Certain data communications, such
as e-mail and file transfers, require 100% accuracy, but can easily tolerate
delay. Real-time voice transmissions can tolerate only minor delays, but can
tolerate some distortion. Real-time video broadcasts have very low tolerance for
both delay and distortion.
Cell switching can resolve most of the problems inherent in packet-switched
networks: (i) a cell will not be delayed behind an unusually large packet and
(ii) the addressing information contained in the cell can include prioritizing
and sequencing data, which eliminates delays and distortion. Thus, an ATM
carrier can offer quality of service performance guarantees.
The fact that the ATM circuit is virtual, not physical, provides two major
advantages. First, it is not necessary to reserve exclusive network resources
for a given connection, and thus the economic efficiencies of
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statistical multiplexing of several simultaneous data transmissions can be
realized. Second, once a virtual circuit path is established, switching time is
minimized, allowing much higher network throughput. TeleHub decided to deploy
VASP(TM) over an ATM network because of ATM's superior capabilities as compared
to alternative circuit and packet switching systems.
Voice Switching Over ATM
With the development of voice switching over ATM, efficiencies can be
achieved through integrated, consolidated networks for voice, data and video
connected via leased lines or public networks. ATM delivers operational
simplicity equivalent to that of the virtual private network ("VPN") and adds
the superior bandwidth economics of multiplexing. Voice calls may be efficiently
transported via virtual circuits, with voice quality assured due to
sophisticated voice adaptation techniques and quality of service support. The
Company believes the communications industry is moving rapidly towards
consolidated networks based on ATM switching because these networks offer the
advantages of speed, economy, and interoperability for the spectrum of
networking applications.
Signaling System Number 7
Technology has changed the architecture of telephone switching systems. The
Signaling System Number 7 ("SS7") is the current telecommunications
industry-accepted system of protocols and procedures used to control telephone
communication and provide routing information. SS7 is also used to provide
vertical calling features such as calling card validation, 800 number
portability (i.e., the routing of 800 numbers to a new location) and calling
name delivery. By storing information, such as routing data, billing information
and technical system data and controls at the Signal Control Point ("SCP"), an
SS7 network allows call set-up and routing to be accomplished independent of the
voice circuits.
SS7 is characterized by high-speed packet data and out-of-band signaling
(signaling that does not take place over the same path as the transmission
itself, such as a voice conversation). Traditional telephony was in-band, where
the signals to set up a call between one switch and another always took place
over the same trunk that would eventually carry the call. Out-of-band signaling
establishes a separate digital channel for the exchange of signaling
information. This channel is called a signaling link. When a call is placed, the
dialed digits, trunk selected and other pertinent information are sent between
switches using their signaling links, rather than the trunks.
Out-of-band signaling has several advantages over traditional in-band
signaling: (i) it allows for the transport of more data at higher speeds; (ii)
it allows for signaling at any time during the call, not only at the beginning;
(iii) it enables signaling to network elements to which there is no direct trunk
connection; and (iv) it provides both error correction and retransmission
capabilities to allow continued service in the event of signaling point or link
failures. However, under traditional circuit-switched systems, SS7 signaling
identifies the trunk to which a call must be routed to and that trunk must be
present and available at all times. Therefore, the bandwidth is reserved and
paid for whether it is used or not. Moreover, that leased line is engineered for
the busy hour model, so that little or no call blocking occurs. In contrast,
VASP(TM) has features of SS7 imbedded within it and, therefore, transactions
which are sent over a VASP(TM)-managed network can be switched directly into the
PSTN. TeleHub improves upon the traditional SS7 call model because VASP(TM)
interprets the SS7 messages on a dynamic basis, so that ATM connections are
created "on-demand." On the ATM backbone, only a portion of the busy hour
capacity is permanently connected.
Operational Support Systems
OSS encompass a broad array of software and systems that perform critical
functions for telecommunications carriers, including ordering, provisioning,
service assurance and billing. Ordering systems allow carriers to collect
customer information, retrieve current service information, capture and validate
new service requests, verify the availability of selected services and transmit
completed orders to one or more provisioning operational supporting systems.
Carriers use provisioning systems to install services for new customers and to
change or add services for existing customers. Service assurance systems allow
carriers to perform the testing,
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monitoring and reporting necessary to maintain network availability and feed
operational data to other business systems. Billing systems are used by carriers
to collect, collate, manage and report billing information.
Historically, as carriers have added new services, such as wireless or
Internet-based services, they have developed multiple, distinct operational
supporting systems. These legacy, proprietary OSS have typically been
mainframe-based systems that in many cases utilize incompatible software and
technologies, making communication among systems difficult. These OSS are
further strained by the many incremental changes that have been made in order to
accommodate new technologies, such as client/server technology and advancements
in data networking, and the proliferation of value-added services, such as call
waiting, call forwarding and voice mail. Despite these difficulties, carriers
are unable to replace completely existing OSS due to the large investments and
vast amounts of historical data contained in these systems. As a result,
carriers continue to make incremental modifications to these OSS, further
increasing their complexity and interoperability difficulties.
In contrast to the current telecommunications environment in which carriers
use disparate OSS systems for each aspect of a call transaction (e.g., call
processing, billing, traffic monitoring and decision support systems), TeleHub's
VASP(TM) integrates all of these functions into one system that is compatible
with legacy systems. VASP(TM) is capable of processing all information regarding
a call in real-time, is scalable to a carrier-class level, and has the
flexibility to integrate new services and products quickly and seamlessly.
THE TELEHUB SOLUTION
TeleHub was formed to capitalize on the demand for advanced network
features and capabilities resulting from the telecommunications industry's
changing competitive and regulatory environment. Existing carriers must develop
new OSS that are interoperable with their legacy systems, not only to support
initiatives like LNP and the unbundling requirements of the Telecommunications
Act, but also to enable carriers to respond to increasing competitive
challenges.
VASP(TM) addresses several shortcomings of legacy networks including: (i)
the inability to switch packet-and cell-based traffic into the PSTN; (ii) the
lack of real-time management, billing and monitoring capabilities; (iii) the
inflexibility of hardware-based network architectures; and (iv) the lack of
integrated OSS capabilities. VASP(TM) creates virtual switching capabilities,
permits real-time network supervision and facilitates the introduction of new
service offerings. When fully deployed, VASP(TM) will integrate voice, video and
data on a single switched network and enable the provisioning of
bandwidth-on-demand services.
Key benefits of the Company's solution include:
New Market Opportunities. VASP(TM) allows customers to overcome some of the
traditional barriers to entry in the telecommunications service markets such as
hardware limitations and the high cost of facilities. Management expects
VASP(TM)-enhanced carriers to be able to enter the local, long distance, voice,
video and data transmission markets using one integrated network. Utilizing
TeleHub's ATM network, switchless resellers soon will be able to offer video and
data services in addition to their customary voice services. Similarly, by
incorporating VASP(TM) into their products, ATM switch manufacturers can enter
the voice switch market.
Flexible and Scalable Architecture. VASP(TM) is a software solution in
contrast to the hardware-based configuration of legacy networks. The Company
believes that VASP(TM)'s open architecture and integrated OSS capabilities can
be adapted to most existing vendor hardware and are easily and readily scalable,
so that carriers, both small and large, can quickly and inexpensively develop
and implement new products and services. Existing switching platforms do not
have this flexibility and often require costly and time consuming hardware
modifications to add or change services.
Rapid Market Entry and Cost Avoidance. Management believes that VASP(TM)
offers the capabilities of a facilities-based network on a virtual basis and
therefore will allow carriers to enter markets quickly and avoid the time and
expense associated with procuring and installing costly central office, tandem
and distribution facilities. Also, OEMs could readily adapt their existing
products for multiple markets rather than incur significant expense to develop
separate products for each market.
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Improved Time-to-Market for New Products and Services. Historically, new
product and service offerings required extensive testing to insure compatibility
with existing network configurations. VASP(TM) allows such testing to be
completed in less time than with the legacy-based systems and allows new
products and services to be rolled out electronically to the entire network from
one central location.
Improved Network Management. VASP(TM) allows real-time access to billing
information and customer calling patterns, and also provides for electronic
order entry and trouble ticketing. With real-time supervision of network
activity, VASP(TM)-managed networks can monitor customer traffic, and the
specific network elements involved in carrying a particular call while the call
is in-process. Such networks can also recover from line errors, transmission
faults and even catastrophic failures much more quickly than legacy systems
allow currently. Network maintenance and repair personnel can use this data to
build more efficient routing and restoration functions. These capabilities
should reduce network downtime, provisioning delays, maintenance costs and
operating expenses, as well as enable carriers to improve the quality of their
services and to offer more responsive customer care.
Increased Revenue from Existing Customers. VASP(TM)-equipped carriers are
able to store, maintain and access relevant information about customers and
their calling patterns on-line. The Company believes that such real-time market
research could be harnessed to generate additional revenues or identify new
marketing opportunities.
Increased Value to Resellers. VASP(TM) enhances the competitive position of
resellers. TNS offers voice-over-ATM services at rates generally lower than
traditional circuit-based voice rates or other point-to-point advanced voice
services. TNS's reseller customers will also soon be able to expand their
service offerings to include video and data services without the need to procure
high cost private data networks. With bandwidth-on-demand pricing, end-user
customers are charged only for actual bandwidth used, which makes video and data
services affordable for small end-user customers (a reseller's principal
market). Using VASP(TM)'s advanced information management capabilities, TNS can
electronically provision new customers and diagnose delays much more quickly
than legacy systems, so new customers can quickly start generating revenue for
the reseller.
BUSINESS STRATEGY
The Company's objective is to become a leading provider of next generation
services and software solutions to the telecommunications industry. Key elements
of the Company's strategy include:
Leverage its First-to-Market Advantage. The Company will continue
leveraging its proprietary technology to influence industry standards, build
market share quickly and develop innovative packaging and pricing plans.
Build Market Share on the TNS Network. The Company will continue to build
TNS's customer base by leveraging the competitive advantages of its
VASP(TM)-managed ATM network. TNS expects to continue offering its enhanced
services at rates generally lower than competing carriers while also providing
superior services, including real-time access to billing and customer
information, electronic provisioning and trouble ticketing, and soon, the
ability to offer switched video and data services.
Expand Strategic Alliances. The Company will continue to enhance its joint
marketing and technology development efforts through strategic alliances with
leading equipment manufacturers and carriers. The Company has formed strategic
alliances with manufacturers, such as Newbridge, to assist the Company in
introducing its VASP(TM) technology into the next generation of
telecommunications equipment. In addition, the Company has formed a strategic
relationship with Comdisco, a network services provider, to accelerate entry
into targeted corporate markets and to stimulate growth of the Company's
customer base. The Company continues to pursue additional relationships with
other telecommunications industry participants.
Operate and Enhance the Next Generation Platform. The Company will continue
to enhance VASP(TM) to offer a broader range of products and services to
carriers and OEMs. Further enhancements of VASP(TM) are also directed toward the
continued integration of the Company's long distance ATM network with the local
services market. Because TNS is currently utilizing VASP(TM), potential TTC
customers can witness the
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benefits of a VASP(TM)-based platform in operation, as well as utilize the TNS
network for developing and testing new products.
Attract Experienced Management. The Company will continue to attract highly
qualified individuals with proven expertise from various segments of the
telecommunications and related industries. The Company's management team has
extensive and diverse experience. Management has demonstrated its expertise by
deploying and operating TeleHub's ATM network and by developing a growing
customer base for its wholesale services, as well as by developing, enhancing
and licensing the VASP(TM) technology.
PRODUCTS AND SERVICES
TELEHUB TECHNOLOGIES CORPORATION
VASP(TM)
VASP(TM)'s applications are designed to administer, operate, control and
manage switching devices and network elements in the public carrier services
market. The Company believes that VASP(TM) provides telecommunications carriers
with superior billing, management and control capabilities. VASP(TM) has been
designed to be integrated with any carrier's customer care, billing,
provisioning and network management applications. VASP(TM) accumulates
information about network events for each phone call and generates a Transaction
Detail Record ("TDR"). The TDR can be converted into the standard industry call
detail record or into customized information that allows service providers to
bill innovatively (e.g., millisecond billing). In addition, service providers
can access their databases containing customer information and individual call
records in real-time to trouble shoot problems and identify customer calling
patterns. This information can be obtained by simple dial-up access from a
personal computer, as opposed to the current network process of downloading
information from each switch in the network, which can take more than a day to
complete. The carrier can use such information as a strategic advantage for
pricing and offering targeted products based upon real-time market feedback. The
Company's software can also be used as a network surveillance monitoring device.
The software has the ability to track phone calls from end-to-end and,
therefore, can locate the specific network element that may be causing a
problem. These advantages, coupled with the capability to provision circuits
electronically, will significantly reduce carriers' operating costs.
The Company expects that future releases of VASP(TM) will allow for the
replacement of the Class 4/tandem switch and Class 5/end-office switch. Based
upon engineering studies, the Company believes that by using ATM and VASP(TM) in
place of traditional switch fabrics, the reduction in tandem switching
investment will lower the overall cost of multi-city interconnections by 45% to
60%. The VASP(TM) open system architecture is scalable from small sizes up to
hundreds of phone calls per second, and its underlying hardware platforms and
control center designs are selected to meet the operating objectives by
accumulating no more than one hour of downtime during each twenty year period of
service (99.999% uptime service level objective). VASP(TM) is also adaptable to
other transmission mediums such as IP, cable and wireless.
TTC's products and services include the following:
Virtual Class 4/Tandem Switching (expected to be available in the third
quarter of 1998). The Company expects that its software, combined with an ATM
switching platform, will be capable of replacing the traditional Class 4/tandem
switch. This capability will enable data service providers to offer voice
products over their existing networks. VASP(TM), running on a Sun Microsystems
server and controlling ATM switches, offers a 30% to 40% savings over the cost
of purchasing and installing traditional tandem switches. In addition, TeleHub's
VASP(TM)-based software solution offers other benefits, including cost effective
scalability, customization to specific customer requirements and applications,
and faster introduction of new products.
Local Switch Bypass (expected to be available in the third quarter of
1998). TTC is engineering solutions to identify Internet data and other
long-holding time calls (e.g., voice mail) and route them directly to called
parties, thereby bypassing end-office and tandem switches. The Company expects
this technology to address carriers' growing problem of congestion at end-office
and tandem switches caused by Internet traffic.
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TTC's solution allows carriers to manage existing traffic levels and flow
without purchasing additional switch capacity.
Virtual Class 5/End-Office Switching (expected to be available in
1999). TeleHub is in the process of enhancing its VASP(TM) solution to duplicate
the basic functionality of a Class 5/end-office switch. TeleHub expects its
virtual Class 5 solution to provide carriers with the capability to enter the
local market with a voice product at a fraction of the cost of buying and
installing a conventional Class 5/end-office switch. The same advantages offered
by TeleHub's Class 4/tandem switch solution apply here -- reduced capital
expenditures, customization and faster time-to-market for new products. As an
example, many CLECs have data Points of Presence ("POPs") which currently
utilize ATM switches. TeleHub expects its solution to allow CLECs to carry and
switch voice traffic using their existing ATM networks without purchasing Class
5/end-office switches.
Virtual STP/SCP Signaling (available today). Signal Transfer Points
("STPs") and SCPs are key elements of the underlying SS7 network. Messages, such
as telephone number, calling card validation, 800 number routing, and calling
name delivery are transmitted to STPs that route the messages to the proper SCPs
where call processing information is stored. Embodied within the VASP(TM) design
today are both SCP and STP functionality, thereby allowing carriers to perform
their own SS7 signaling, without purchasing signaling services or expensive
equipment. VASP(TM) contains translation and routing instructions needed to
deliver advanced network services and can be further enhanced as new services or
requirements are identified. The necessary STP functions are also incorporated
in the VASP(TM) design to handle the signaling and management of "on-net"
traffic. The conventional STP is deployed in the TeleHub design as an interface
to the other carriers in the PSTN and to act as a firewall to protect both
parties proprietary information from compromise.
Mediated Access Services ("MAS") (expected to be available in 1999). The
Telecommunications Act and subsequent FCC mandates will require service
inter-operability between the various proprietary systems of existing
telecommunications carriers. Local and long distance carriers and their current
software vendors are therefore expending significant design and software
development resources trying to create the inter-operability solutions that can
be achieved through VASP(TM). TeleHub expects many carriers to select TeleHub as
a service supplier and VASP(TM) as a standard product to integrate the various
operating overlays.
TeleHub expects its MAS capability to provide neutral "third-party" access
to service management system and OSS databases throughout the industry. Any
service provider (virtual or facilities-based) will be able to obtain the key
call treatment information necessary to process customer calls, while the
proprietary information of the database owner is protected from compromise. The
first requirement for mediation results from the FCC's mandated LNP that
requires the RBOCs and GTE Corporation ("GTE") to permit their customers to
switch to another competing LEC and still retain their same telephone number.
The Company believes its MAS will encourage the LECs to offer unbundled local
service elements to other carriers as required by the Telecommunications Act.
Management believes this is currently the greatest hurdle for the RBOCs to
overcome in achieving their long standing goal of entry into the long distance
business within their regions.
Switched Virtual Circuit ("SVC") (expected to be available in 1999). The
Company is in the process of developing an SVC product expected to provide
carriers with a cheaper alternative to permanent virtual circuit (i.e.,
point-to-point) products offered today. The advantage of an SVC is that when the
circuit is not utilized, the capacity can be allocated for another use. A
permanent virtual circuit must allocate bandwidth to the user regardless of
whether there is traffic flowing over the circuit.
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The following tables summarize the manner in which the Company expects
VASP(TM), when fully deployed, to meet industry needs:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
CUSTOM PLATFORM SEGMENT CURRENT INDUSTRY ENVIRONMENT TTC OFFERING
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLECs - Local focus -- out-source wide area - Provide WAN/long distance transport
networking ("WAN") and long distance - Switch voice and data into PSTN
services - Provide software to integrate voice
- Inability to switch packet-based and data on one network
traffic - One integrated platform for all OSS
- Different networks for voice and functions with real-time billing,
data management and control
- Multiple OSS - Local switch bypass for Internet (and
- Bottleneck at end-office due to other long-holding time) traffic
impact of Internet traffic on - Greatly accelerates time to market
switch/port capacity - 30-40% cost savings for Class 4
- Time to market critical functionality
- Capital intensive - Significant cost savings for Class 5
- LNP difficulties functionality
- Proprietary switch architecture - MAS facilitates unbundling of the
local loop, including LNP
- Open architecture
- ----------------------------------------------------------------------------------------------------------------
ILECs - Inability to switch packet-based - Switch voice and data into PSTN
traffic - Provide software to integrate voice
- Different networks for voice and and data on one network
data - One integrated platform for all OSS
- Multiple OSS functions with real-time billing,
- Bottle neck at end-office due to management and control
impact of Internet traffic on - Local switch bypass for Internet (and
switch/port capacity other long-holding time) traffic
- Regulatory pressure to meet the - MAS facilitates unbundling of the
FCC's 14 point checklist local loop, including LNP
- LNP not widely implemented - Open architecture
- Proprietary switch architecture
- ----------------------------------------------------------------------------------------------------------------
IXCs - Inability to switch packet-based - Switch voice and data into PSTN
traffic - Provide software to integrate voice
- Different networks for voice and and data on one network
data - Better management of network
- Intense price competition correlates to lower network costs
- Multiple OSS - One integrated platform for all OSS
- Expensive to penetrate the local functions with real-time billing,
loop management and control
- Proprietary switch architecture - Virtual STP/SCP signaling
- MAS provides cheaper alternative to
entering the local loop
- Open architecture
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
OEM SEGMENT CURRENT INDUSTRY ENVIRONMENT TTC OFFERING
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ATM Switch - Developed to transmit data only - Ability to integrate, bill, manage
Manufacturers - Inability to integrate, bill, and switch voice traffic
manage and switch voice traffic - Virtual Class 4 and Class 5 switching
- Extremely expensive and time opens multi-billion dollar voice
consuming to integrate new products switch market to ATM switch
into the switching platform manufacturers
- 30-40% cost savings for Class 4
functionality
- Significant cost savings for virtual
Class 5 functionality
- Object oriented software
significantly improves time to market
for new products
- Provides ATM switches with virtual
STP/SCP signaling and service logic
for multi-media transactions
- ----------------------------------------------------------------------------------------------------------------
Digital Loop Carrier - Bottleneck at end office due to - Local switch bypass for Internet (and
Manufacturers impact of Internet traffic on other long-holding time) traffic
switch/port capacity - Software based solution to provide
- Hardware based environment with hardware manufacturers with the
limited intelligence intelligence to route, analyze and
- Treats all traffic the same -- bill based upon the type of traffic
cannot differentiate
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
TTC CUSTOMER RELATIONSHIPS
Since the initial release of VASP(TM), the Company has actively pursued
OEMs, CLECs and other network service providers to license its proprietary
technology. As of July 15, 1998, the Company had signed memoranda of
understanding with a digital loop carrier manufacturer, an ATM switch
manufacturer, and a network service provider. In addition, TTC has submitted
proposals to two CLECs. TTC anticipates entering definitive contracts during
1998. For example, in the OEM market, TeleHub and Newbridge have signed an
agreement whereby Newbridge has purchased a "right-to-use" license for a trial
system of VASP(TM) for $5.0 million for use in its laboratory and has proposed a
VASP(TM)-enhanced solution to an RBOC.
The Company has formed a joint venture that will use VASP(TM) to manage
satellite telecommunications delivery in the Australasian region (Australia, New
Zealand, Southeast Asia, India, and the Philippines). The Company will
contribute a non-exclusive VASP(TM) license and associated technical support and
will receive a 49% interest, while the joint venture partner will contribute
$5.0 million for operating funds and will initially manage the joint venture.
The Company believes that the joint venture will introduce the VASP(TM)
technology into a new geographic market and demonstrate VASP(TM)'s benefit for
satellite networks just as TNS demonstrates VASP(TM)'s ability for wireline
networks.
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TELEHUB NETWORK SERVICES CORPORATION
Network. TeleHub's VASP(TM) solution has been developed to converge voice,
data and video on its single network (depicted below).
[Picture of U.S.]
TNS's backbone is centered on three ATM switching platforms located in
Chicago, New York and Los Angeles. The three sites are connected via DS-3
(growing to OC-12) fiber optic lines leased from WorldCom. TNS's network,
utilizing WorldCom's backbone circuits to connect TNS's planned POPs, is
designed to ultimately reach over 90% of U.S. telephone exchanges (currently at
70%). The use of TNS's ATM backbone between its switches, as compared to
conventional legacy technologies, is estimated to yield a 3:1 (or more) increase
in traffic carrying capacity and significant savings. TeleHub believes that its
savings on the backbone are achieved via an ability to use available contracted
permanent bandwidth in an "on-demand" fashion. TeleHub's backbone bandwidth
allocation strategy assumes that only a portion of the busy hour bandwidth needs
to be permanently connected, an assumption based upon standard industry traffic
engineering models. The rest of the bandwidth can be used to handle busy hour
traffic between other signaling service providers. It is VASP(TM)'s ability to
create or tear down network connections remotely "on-demand" that enables
TeleHub to most efficiently utilize available bandwidth. For example, in a
network with cross-country switches, busy hour bandwidth would be allocated on
the East Coast at a different time than it would be required on the West Coast.
Available bandwidth could be shifted to follow the traffic peaks, resulting in a
lower overall bandwidth requirement than would be necessary in a fixed facility
network.
Long Distance. TNS provides wholesale long distance services to ILECs,
CLECs and international telephone companies that terminate telephone calls in
the United States. TNS offers its customers competitive pricing yet maintains
margins higher than its competitors because of the efficiencies of its ATM
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backbone. The inherent advantages of ATM coupled with VASP(TM) enables TNS to
better manage and control its network, therefore further enhancing its cost
advantage. In addition, TNS provides its carrier customers with real-time access
to end user billing information and calling patterns, thereby allowing them to
market enhanced services to their customer bases.
Bandwidth-on-Demand (expected to be available in 1999). TNS expects to
provide a bandwidth-on-demand product utilizing a VASP(TM) SVC product. With
bandwidth-on-demand, end-user customers are charged only for actual bandwidth
used, which makes video and data services affordable for small end-user
customers (resellers' principal market).
The following table summarizes the manner in which the Company expects
TNS's services to meet industry needs:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
SERVICES SEGMENT CURRENT INDUSTRY ENVIRONMENT TNS OFFERING
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Wholesale Long - Predominately voice offering - Integrated voice, video and data
Distance - Fixed capacity pricing - Bandwidth-on-demand pricing
- Limited and delayed access to - Real-time access to customer
customer information (including information (calling patterns and
calling patterns) billing)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
TNS CUSTOMER RELATIONSHIPS
TNS has targeted the switchless reseller segment, which in 1997, consisted
of approximately 500 service providers with annual revenues estimated at $2.1
billion. Additionally, TNS is targeting ILECs, CLECs and international telephone
companies that terminate traffic in the United States. TNS is also marketing its
data services to large Fortune 1000 companies. TNS has entered into a memorandum
of understanding with Comdisco, whereby the companies will jointly market long
distance services to Comdisco's existing customer base.
As of July 15, 1998, the Company had entered into seventeen contracts to
provide long distance services to switchless resellers. The Company estimates
that these reseller customers will transition approximately one million end-user
telephone lines to TNS's network during 1999. In addition, the Company is
currently in active contract negotiations with multiple other service carriers.
SALES AND MARKETING
TELEHUB TECHNOLOGIES CORPORATION
TTC utilizes a small and experienced internal sales force, strategic
alliances, and co-marketing agreements to market its VASP(TM) software. In
addition, TeleHub leverages the sales forces of its strategic partners and OEM
vendors to further penetrate its targeted markets. The TeleHub sales force
focuses its selling efforts on potential customers in the OEM segment, such as
Newbridge, Ascend, General Datacom Industries Inc., World Access, Fore Systems
Inc., Coyote Network Systems Inc., Lucent, Siemens, Telefonekitieboleset LM
Ericsson ("Tekelec"), Nortel and Cisco. TTC markets custom platform services to
RBOCs and CLECs, and to network service providers such as Comdisco.
TELEHUB NETWORK SERVICES CORPORATION
TNS has an experienced internal sales department that works with several
experienced external sales agents. TNS's sales effort is directed at many of the
same carrier customers as TTC, but offers transport and switching services as
opposed to software solutions. TNS markets the capability of its
VASP(TM)-enhanced ATM network, thereby allowing its customers to offer a broader
range of services than current product offerings encompass. For example, TNS has
been able to market voice services to Comdisco's existing customers, to whom it
previously only offered data services.
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COMPETITION
The telecommunications industry is highly competitive, rapidly evolving and
subject to constant technological change. In particular, there are numerous
companies offering long distance products and services, and the Company expects
competition to increase in the future. The Company believes that existing
competitors are likely to continue to expand their product and service offerings
to appeal to existing or potential customers of the Company. Moreover, the
Company expects that new competitors are likely to enter the communications
market and some of these new competitors may market communications services
similar to the Company's products and services, which would result in greater
competition. However, increased competition also creates additional
opportunities for the Company to market its VASP(TM)-based products to current
and future participants in the local exchange, long distance, data and video
markets.
Many competitors (such as AT&T, MCI, Sprint, WorldCom, Qwest Communications
International Inc. and others) and potential competitors have substantially
greater financial, personnel, technical, marketing and other resources than the
Company. The Telecommunications Act allows the RBOCs and others (such as
electric utilities and cable television companies) to enter the long distance
market. A continuing trend toward consolidation, mergers, acquisitions and
strategic alliances in the telecommunications industry could give rise to
significant new competitors to TeleHub or its customers. TeleHub anticipates
that certain entrants will be strong competitors because, among other reasons,
they may (i) be well capitalized; (ii) already have substantial end-user
customer bases and brand name recognition; and/or (iii) enjoy cost advantages
relating to local loops and access charges. The introduction of additional
strong competitors into the switched long distance business could mean that
TeleHub and its customers would face substantially increased competition. As a
new entrant, TeleHub will compete primarily by providing superior service and
support and on price.
In addition, the regulatory environment in which the Company operates is
undergoing significant change. As this regulatory environment evolves, changes
may occur which could create greater or unique competitive advantages for all or
some of the Company's current or potential competitors, or could make it easier
for additional parties to provide services.
In the United States, price competition in the long distance business has
generally been intensive. AT&T, the leading long distance carrier, was
reclassified as a non-dominant carrier, which allows AT&T substantial pricing
flexibility. Long distance carriers, including AT&T as well as other
non-dominant carriers such as TNS, currently must file tariffs at the FCC for
domestic interstate services and for international services. However, such
tariffs can be amended on one day's notice; therefore, price changes by one
carrier can be matched readily by the others. The long distance communications
industry is significantly influenced by the marketing and pricing decisions of
larger industry participants such as AT&T, MCI, Sprint and WorldCom. TNS
believes that its wholesale customers generally price their service offerings at
or below the prices charged by AT&T for its long distance reseller services.
Rate reductions by AT&T and other first-tier carriers may necessitate similar
price decreases by the Company.
Under the Telecommunications Act, RBOCs have the opportunity to provide
out-of-region long distance services immediately and in-region long distance
services if certain conditions are met. RBOC entry into the domestic and
international long distance business and the emergence of other new local
competitors could result in substantial competition to the Company and may have
a material adverse effect on the financial condition, results of operations or
cash flow of the Company. In December 1997, a federal court ruled that the
Telecommunications Act's pre-conditions to the RBOCs' entry into the in-region
long distance telecommunications services are unconstitutional (the "SBC
Decision"). Other federal courts have reached contrary decisions, and the SBC
Decision has been stayed pending appellate review. The result of the appellate
review cannot be predicted. If the SBC Decision were upheld on appeal, it could
have an adverse effect on the Company and other carriers because it would speed
the entry of the RBOCs into the in-region long distance market and would reduce
the primary incentive for RBOCs to open their local markets to competition.
The long distance industry is undergoing significant consolidation that has
created and will continue to create numerous other entities with substantial
resources to compete for long distance business. New technologies could also
give rise to new regulation or new competition. The Company's larger competitors
have significantly greater name recognition, financial, technical, network and
marketing resources. They also
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<PAGE> 52
may offer a broader portfolio of services and have long standing relationships
with customers targeted by the Company.
The Company has entered into telecommunications services agreements with
its wholesale long distance customers which do not contain minimum usage
commitments and which are cancellable upon short notice without penalties. If
these services agreements are canceled or are not renewed upon expiration, the
loss of customers could have a material adverse effect on the Company's
business, operating results and financial condition. Prices for domestic and
international long distance calls have decreased in recent years and are likely
to continue to decrease. There can be no assurance that the Company will be able
to compete effectively in the domestic or international long distance markets.
TTC faces competition from some of the most experienced companies engaged
in the development of telecommunications equipment and related software.
Examples include switch vendors (Lucent, Nortel and Siemens), ATM vendors
(Nortel, Siemens, Alcatel NA Cable Systems Inc. ("Alcatel"), Cisco and Ascend),
signaling products vendors (Nortel and Tekelec), and OSS providers
(Hewlett-Packard Inc. and Applied Digital Access Inc.). The Company believes
that existing competitors are likely to continue to expand their product
offerings to appeal to existing or potential customers of the Company. Many of
the Company's existing competitors have financial, personnel and other
resources, including brand name recognition, substantially greater than the
Company. TTC may well find itself both a strategic partner and a competitor with
some of these companies.
In the future, the Company may be subject to intense competition due to the
development of new technologies, such as ATM and wave division multiplexing,
resulting in an increased supply of domestic and international transmission
capacity. The telecommunications industry is experiencing a period of rapid and
significant technological evolution marked by the introduction of new product
and service offerings. The introduction of new products or emergence of new
technologies may cause capacity to greatly exceed the demand, reducing the
pricing of certain services to be provided by the Company. The effect on the
Company's operations of technological changes cannot be predicted, and if the
Company is unable to keep pace with advances, it could have a material adverse
effect on the financial condition, results of operations and cash flow of the
Company.
The Company believes that its proprietary software is unique in that it
provides for the only ATM service in commercial operation that can be switched
into the PSTN. Other telecommunications carriers can provide their own networks
and can provide those networks to other carriers. Numerous established and
start-up national and regional fiber optic networks are owned by IXCs, ILECs and
CLECs, including AT&T, MCI and Sprint, each of whom has greater name
recognition, financial, personnel, technical and marketing resources than the
Company. Other companies have announced or may be planning the construction of
additional networks.
REGULATION
The following summary of regulatory developments and legislation does not
purport to describe all present and proposed federal, state and local
regulations and legislation affecting the telecommunications industry. Other
existing federal, state and local legislation and regulations are currently the
subject of judicial proceedings, legislative hearings and administrative
proposals which could change, in varying degrees, the manner in which this
industry operates. Neither the outcome of these proceedings, nor their impact
upon the telecommunications industry or the Company, can be predicted at this
time. This section also sets forth a brief description of regulatory and tariff
issues pertaining to the operation of the Company.
TeleHub's services are subject to federal, state, and local regulation. The
Company's business strategy is to continue to operate TNS as a wholesale
telecommunications service provider. To the extent the Company's business
strategy changes, the Company could become subject to additional regulatory
requirements. Pursuant to the Communications Act of 1934, as amended (the
"Communications Act") including as amended by the Telecommunications Act, the
FCC exercises jurisdiction over all of TNS's facilities and services used to
provide, originate, or terminate interstate or international communications.
State regulatory agencies have jurisdiction over all of TNS's facilities and
services used for intrastate communications. Local governments
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often require communications carriers to obtain licenses or franchises to
utilize public rights-of-way necessary to install and to operate networks,
equipment, and other facilities. In addition to regulation by multiple
government agencies, different regulatory requirements apply to long distance
services than apply to local exchange services. For example, long distance
carriers must pay regulatorily determined access charges to LECs. Communications
carriers must also contribute to universal service support mechanisms, which are
being developed by federal and state agencies. The jurisdictional reach of
federal, state and local regulatory authorities is subject to continuous change,
controversy and judicial review. TNS is unable to predict the effect or outcome
of such changes, controversy or judicial review.
The Telecommunications Act eliminates many of the pre-existing barriers to
competition in telecommunications markets, preempts state and local barriers to
entry into the local exchange and other telecommunications markets, and
establishes relationships between and among telecommunications carriers and
providers. The Telecommunications Act delegates to the FCC and state regulatory
agencies broad authority to implement the law.
The Company is subject to the authority of the FCC and the state regulatory
agencies to enforce applicable regulatory requirements. The FCC and state
regulatory agencies may address regulatory non-compliance with a variety of
enforcement mechanisms, including monetary forfeitures, refund orders,
injunctive relief, license conditions and/or license revocation.
The regulation of the telecommunications industry is changing rapidly and
the regulatory environment varies substantially from state to state. There can
be no assurance that future regulatory, judicial or legislative activities will
not have a material adverse effect on the financial condition, results of
operation, or cash flow of the Company or that domestic or international
regulators or third parties will not raise material issues with regard to the
Company's compliance or non-compliance with applicable laws and regulations.
Long Distance Services. TNS's wholesale long distance services are subject
to federal regulation governing interstate and international telecommunications
services. As a communications common carrier, TNS must comply with the
requirements of the Communications Act, as well as the FCC's regulations
promulgated under the Communications Act.
Pursuant to the Communications Act, among other things, common carriers
such as TNS must offer service on a non-discriminatory basis at just and
reasonable rates. Such carriers are also subject to the FCC's complaint
jurisdiction. IXCs providing international services are required to obtain
authority under Section 214 of the Communications Act and to file a tariff
containing the rates, terms and conditions applicable to their services prior to
initiating their international telecommunications services. The Company holds a
Section 214 certificate from the FCC for global facilities-based and global
resale authority. The Company is a non-dominant international carrier and also
must comply with the federal statutory and regulatory requirements of common
carriage in the offering of its international services. International
telecommunications service providers are also required to file copies of their
contracts with other carriers, including foreign carrier agreements, and a
variety of reports regarding their international revenue, traffic flows and use
of international facilities. Carriers holding Section 214 authority are subject
to FCC rules requiring, among other things, prior approval for transfers of
control and assignments, and notifications or approvals of certain foreign
carrier investments.
Because the interstate long distance services market has become
sufficiently competitive, the FCC has streamlined the regulation of interstate
carriers. Thus, the FCC has ordered that non-dominant IXCs do not need to file
tariffs offering their services. While the Order is being reviewed by a Federal
appeals court, the court has stayed the FCC's de-tariffing decision. As a
result, IXCs must continue to file interstate tariffs (as well as international
tariffs). TNS has filed tariffs with the FCC. In addition, TNS can install and
operate non-radio facilities for the transmission of interstate communications
without prior FCC authorization.
TNS's intrastate long-distance services are also subject to state
regulations. TNS has obtained or applied for authority to provide intrastate
services from various state regulatory agencies and has filed and is in the
process of filing tariffs specifying the rates, terms and conditions for its
wholesale intrastate services.
Local Exchange Services. Although TeleHub does not intend to provide local
exchange services directly to end users, certain of TNS's proposed services will
make local exchange features and capabilities available to
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other carriers. To offer its local exchange-related services, TNS may need to
obtain certifications to provide local exchange services from and file tariffs
with state regulatory agencies, and negotiate agreements with the ILECs for
interconnection, co-location and unbundled access.
State Requirements. Most states require a certification or other
authorization to offer local exchange and long distance intrastate services.
These certifications generally require a showing that the carrier has adequate
financial, managerial and technical resources to offer the proposed services in
a manner consistent with the public interest. In addition to tariff
requirements, most states require that common carriers charge just and
reasonable rates and not discriminate among similarly situated customers. Some
states also require the filing of periodic reports, the payment of various
regulatory fees and surcharges, and compliance with service standards and
consumer protection rules. States also often require prior approvals or
notifications for certain transfers of assets, customers or ownership and for
the issuance of stock, bonds or other forms of indebtedness. As a result, in
certain states TNS requested approvals, made notifications or took other actions
relating to its issuance of a guarantee pursuant to the Initial Note Offering.
While TNS expects to obtain all necessary approvals for the Exchange Offer,
there can be no assurance that such approvals will be obtained, or that they
will be obtained on a timely basis. States generally retain the right to
sanction a carrier or to revoke certifications if a carrier violates relevant
laws and/or regulations. If any state regulatory agency were to conclude that
the Company is or was providing intrastate service without the appropriate
authority, the agency could initiate enforcement actions, which could include
the imposition of fines, the disgorging of revenues, or the refusal to grant the
regulatory authority necessary for the future provision of intrastate
telecommunications services.
State regulatory agencies also regulate access charges and other pricing
for telecommunications services within each state. If regulations are changed to
allow variable pricing of access charges based on volume, the Company could be
placed at a competitive disadvantage over larger long distance carriers.
The Communications Act was substantially amended by the Telecommunications
Act, which provides for comprehensive reform of the United States'
telecommunications laws. The Telecommunications Act may have potentially
significant effects on the financial condition, results of operations or cash
flow of the Company. The Telecommunications Act is designed to enhance
competition in, among other markets, the local telecommunications marketplace
by, among other things: (i) removing state and local entry barriers, (ii)
requiring ILECs to provide interconnection to their facilities, (iii)
facilitating the end users' choice to switch service providers from ILECs to
CLECs, and (iv) requiring access to rights-of-way. The legislation is also
designed to increase local competition by newer competitors such as long
distance carriers, cable companies and public utility companies. In addition,
the Telecommunications Act imposes certain conditions upon all LECs, including
CLECs. To the extent the Company is required to obtain certifications as a CLEC,
these obligations would apply to the Company. Among these requirements are the
duties to establish number portability, dialing parity and reciprocal
compensation arrangements. These requirements may cause the Company to incur
additional administrative and regulatory expenses.
On August 8, 1996, the FCC released the Interconnection Decision, which
established a framework of minimum, national rules enabling state commissions
and the FCC to begin implementing many of the local competition provisions of
the Telecommunications Act. Among other things, the Interconnection Decision
prescribed certain minimum points of interconnection, adopted a minimum list of
unbundled network elements that ILECs must make available to competitors, and
adopted a methodology for states to use when setting wholesale prices for retail
services. The U.S. Court of Appeals for the Eighth Circuit issued a decision
vacating certain portions of the Interconnection Decision and the United States
Supreme Court has agreed to consider the challenges to the Eighth Circuit's
decision filed by the FCC and interested carriers. Whether the Eighth Circuit's
decision will stand, or what further actions the FCC may or may not take in
response to these decisions cannot be predicted.
Local Government Authorizations. Because TNS is selling wholesale services
to other carriers, permitting and franchising requirements are usually handled
by those carriers. However, TNS has obtained necessary local government
authorizations for the installation and operation of facilities that it owns.
The termination of the existing local government authorizations prior to their
expiration dates or failure to renew such authorizations where applicable could
have a material adverse effect on the financial condition, results of operations
and cash flow of the Company. In some municipalities, carriers must pay license
or franchise fees.
49
<PAGE> 55
Universal Service Charges. In 1997, the FCC released an order establishing
a significantly expanded federal universal service subsidy regime to be funded
by interstate carriers and certain other entities. The FCC established new
universal service funds to support telecommunications and information service
provided to qualifying schools, libraries and rural health care providers, and
expanded the federal subsidies for local telephone service provided to
low-income consumers. In accordance with the Telecommunications Act, the FCC
adopted plans to implement the recommendations of a Federal-State Joint Board to
preserve universal service, including a definition of services to be supported,
and defining carriers eligible for contributing to and receiving from universal
service subsidies. The FCC plans to revise its rules of subsidizing service
provided to consumers in high cost areas, which may result in further
substantial increase in the overall cost of the subsidy program. The FCC issued
a public notice in April 1998 seeking comment on proposals to revise the
methodology for determining universal service support. The outcome of the FCC's
pending and future proceedings relating to universal service or their effect on
the Company cannot be predicted. Several parties have appealed the FCC's order
and those appeals are pending before a federal appeals court. The outcome of the
further FCC proceedings or of the pending judicial appeals or petitions for FCC
reconsideration on the Company's operations cannot be predicted.
EMPLOYEES
The Company employed 168 full time personnel as of July 15, 1998. TeleHub
has an employment contract with its Chief Executive Officer ("CEO") and
President, key executives denoted under "Management -- Executive Employment
Agreements" and other executives. For employees without employment contracts,
the Company has arranged for a third party contractor to hire those employees
and handle payroll and benefits. None of TeleHub's employees are members of any
labor unions. TeleHub also utilizes independent contractors and consultants.
INTELLECTUAL PROPERTY
The VASP(TM) software is one of the Company's primary assets. Management is
seeking to protect the Company's intellectual property rights in the VASP(TM)
software under applicable law including using, when and as appropriate, trade
secret and patent protections. Specifically the Company has several patents
pending relating to the VASP(TM) technology. There can be no assurances that the
Company's means of protecting its proprietary rights in the United States or
abroad will be adequate or that competitors will not independently develop
similar technologies. The Company's future success will depend in part on its
ability to protect its proprietary rights to the technologies used by VASP(TM).
PROPERTIES
The Company leases 4,771 square feet of office space in Walnut Creek,
California for its corporate office pursuant to a lease expiring in 2002. The
Company leases 34,920 square feet of office space in Gurnee, Illinois, for its
TNS and TTC offices, technology development and network operations center
pursuant to a lease expiring in 2003. TNS leases 15,341 square feet in downtown
Chicago for its Chicago telecommunications switches, pursuant to a lease
expiring in 2001, another 14,705 square feet in downtown Los Angeles, California
for its Los Angeles telecommunications switch pursuant to a lease expiring in
2007, and conduit and co-location space in downtown Los Angeles pursuant to a
lease agreement expiring in 2007. TNS leases 15,217 square feet in downtown New
York City for its New York telecommunications switches, pursuant to a lease
expiring in 2007. TeleHub Leasing Corporation leases office space in Bedford,
New Hampshire on a month-to-month lease.
LITIGATION
The Company is not currently engaged in any legal proceedings. The Company
is, however, subject to state commission, FCC and court decisions as they relate
to the interpretation and implementation of the applicable federal and state
laws and regulations, such as the Communications Act, as amended, including the
Telecommunications Act. In some cases, the Company may be deemed to be bound by
the results of ongoing proceedings before these bodies.
50
<PAGE> 56
MANAGEMENT
DIRECTORS AND KEY EXECUTIVE OFFICERS
Each Director holds office until the next meeting of shareholders for
election of such Director's class and until successors have been elected and
qualified or until such Director's death, resignation or removal. The Company's
officers are appointed by, and serve at the discretion of, the Board. Set forth
in the table below are the names, ages, and current positions of the Directors
and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
William W. Becker(1).................... 69 Chairman of the Board
Donald H. Sledge(2)..................... 58 President, Vice Chairman, Chief Executive Officer and
Director
Michael G. McLaughlin(3)................ 36 Chief Technology Officer and Director
Herbert H. Swinburne.................... 56 President of TNS
John A. Strand III...................... 53 Acting President of TTC
Richard M. Harmon(2).................... 48 Chief Financial Officer, Treasurer, Corporate
Secretary and Director
Barry C. Lescher(2)..................... 43 Assistant Secretary and Director
John F. Slevin(3)....................... 61 Director
Oz Pedde(1)............................. 56 Director
John R. Snedegar(3)..................... 49 Director
Martin R. Walsh(1)...................... 45 Director
</TABLE>
- ---------------
(1) Class C Director -- term expires 1999.
(2) Class A Director -- term expires 2000.
(3) Class B Director -- term expires 1998.
WILLIAM W. BECKER joined TeleHub in March 1996 and serves as Chairman of
the Board. Mr. Becker is a principal of HHL, the Company's largest shareholder.
He also serves as Chairman of SkyConnect Inc., AirCell Communications, Inc.,
Trans Digital Inc., VR-1 Inc., E-Star Inc. and Northern Cable Inc. Prior to
joining TeleHub, Mr. Becker founded a number of companies involved in
telecommunications, cable TV, oil and gas, real estate development, and other
industries. From 1993 to 1995, Mr. Becker was a principal of WWB Oil & Gas Ltd.
Mr. Becker was a significant investor in IntelCom Group, Inc. (now, ICG
Communications, Inc.) for which he served as chairman and CEO from 1987 to June
1995.
DONALD H. SLEDGE joined the Company in January 1996 as President, Vice
Chairman, CEO and Director and is the CEO and a Director of TTC and TNS. From
1994 to 1995, Mr. Sledge served as President and Chief Operating Officer ("COO")
of West Coast Telecommunications, Inc., a NASDAQ listed long distance company
purchased by Frontier. From 1993 to 1994, Mr. Sledge served as Head of
Operations for New T&T, a Hong Kong-based start-up company. Mr. Sledge was
Chairman and CEO of Telecom New Zealand International from 1991 to 1992. Mr.
Sledge was a member of the board of advisors of Calex and is currently a
director of DataProse, CyWorld Talk, which currently trades on the Alberta Stock
Exchange, AirCell Communications Inc. and Executive Telecard, Inc., a
telecommunications company traded on NASDAQ, and serves as an advisor and board
member to several small technology-based start-up companies. In addition, Mr.
Sledge serves as the Chairman of United Digital Network Inc. ("United Digital"),
a long distance switch based reseller, which is under an agreement to be
acquired by Star Telecommunications, Inc.
MICHAEL G. MCLAUGHLIN founded TeleHub in January 1996 and serves as Chief
Technology Officer ("CTO") and a Director of TeleHub, TTC and TNS. From 1994 to
1995, Mr. McLaughlin served as President and a director of Access Point
Communications Corporation. In 1992, he formed The McLaughlin Group, Inc. (now
"T.M.G.I., Inc.") which provided consulting services to large corporate clients
involving cost reduction and analysis, network configuration strategies and
negotiation of communication carrier contracts. From 1983 to 1991, Mr.
McLaughlin worked for ROLM, a business unit of IBM Corporation
51
<PAGE> 57
("ROLM"), where he was a communications engineer responsible for the design,
development and implementation of communications networks for ROLM's largest
accounts, including The Sears Network, General Electric Company, IBM and Baxter
Laboratories Inc.
HERBERT H. SWINBURNE joined TeleHub in January 1998 and serves as President
of TNS. From 1991 until he joined TeleHub, Mr. Swinburne was the Director and
General Manager of Major Account Network Design for AT&T Canada, which provides
long distance services. From 1989 to 1991, Mr. Swinburne was Director of
Proposal Engineering at Sprint, and from 1988 to 1989, Mr. Swinburne was
Director of the Technical Advisory Center at Sprint. Prior to joining Sprint,
Mr. Swinburne was a Program Manager for Telenet Communications Corporation where
he was responsible for managing the nationwide packet services for the
Department of Agriculture.
JOHN A. STRAND III joined TeleHub as TTC's Acting President in June 1998.
From 1991 to 1998, Mr. Strand was the Director of Technology Planning and
Integration for Sprint. Prior to his position with Sprint, he was a regional
manager for SRI International, an international research institute.
RICHARD M. HARMON joined TeleHub in March 1997 as the Chief Financial
Officer ("CFO"), Treasurer and Corporate Secretary and became a Director in
March 1998. Mr. Harmon is the Treasurer and Corporate Secretary of TNS. From
1992 to 1996, Mr. Harmon was the CEO of Education Finance Corporation, a company
he founded to provide student loans to vocational trade students. From 1990 to
1992, Mr. Harmon served as President of Clean Air Transit. From 1985 to 1990,
Mr. Harmon founded and was President of Network Media Corporation, a cable
network advertising sales group. Between 1980 and 1985, Mr. Harmon was a
principal with Network Development Corporation, a consulting and investment
company emphasizing telecommunications and cable television. Prior to that, Mr.
Harmon served as CFO and COO for Franklin Supply. Mr. Harmon also worked for
Allstate Insurance Company, where he made private equity investments in early
stage companies.
BARRY C. LESCHER joined TeleHub as a Director in 1996 and serves as
Executive Vice President of TTC, a Director of TNS and Assistant Secretary. From
1994 to 1997, Mr. Lescher held engineering positions at telecommunications
companies which included American Teletronics, TMGI and Access Point
Communications Corporation. From 1989 to 1994, Mr. Lescher was a communications
engineer with ROLM. Prior to that, Mr. Lescher worked for a family-owned
business that was involved in the installation and operation of communication
systems.
JOHN (JACK) F. SLEVIN is Chairman, President, and CEO of Comdisco, a New
York Stock Exchange ("NYSE") listed company and was appointed to the TeleHub
Board in July 1997. He has been Comdisco's Chairman of the Board since January
1996 and was named Comdisco's President and CEO in July 1994. Mr. Slevin served
as Comdisco's COO from 1993 through 1994 and was executive vice president of
Comdisco's North American Sales since 1992. He has been a member of Comdisco's
board of directors since 1979. Mr. Slevin is also a director of Media One, a
NYSE listed company, and Interworld Corp.
OZ (OSWALD) PEDDE, a Director of TeleHub since March 1998, has been
President and CEO of Watson & Associates, a Toronto based telecommunications
service and consulting firm since January 1, 1998. From 1995 to 1998, Mr. Pedde
was self-employed as a consultant. From 1991 to 1995, Mr. Pedde was President
and CEO of Manitoba Telephone Systems, a diversified Canadian telecommunications
company and was one of the founding members of the Council of CEOs that created
the "Stentor Alliance," an association of Canada's major telephone companies.
During such period, Mr. Pedde was also a director of Telesat, Canada's satellite
carrier.
52
<PAGE> 58
JOHN R. SNEDEGAR joined TeleHub's Board in March 1998. He has been
President and CEO of United Digital, which trades on the Vancouver Stock
Exchange since 1990. He was also the President and CEO of AmeriTel Management,
Inc. ("AmeriTel"), a California based provider of long distance
telecommunications and management services from 1980 to 1992. In 1992, Mr.
Snedegar led AmeriTel through the acquisition of West Coast Telecommunications,
Inc., forming WCT Communications, Inc. Mr. Snedegar served on the board of
directors of this carrier until its sale to Frontier in early 1995. He is also a
director for StarBase Corporation, a California-based software development
company which trades on NASDAQ, Star Telecommunications, Inc., a long distance
carrier specializing in international services which trades on NASDAQ. Mr.
Snedegar also serves as President of Kendall Venture Funding, Ltd., a reporting
company based in Alberta, Canada.
MARTIN R. WALSH has been the President of Walsh & Associates, an Illinois
high technology consulting firm since January 1, 1998 and joined TeleHub's Board
in March 1998. Previously, Mr. Walsh was Executive Vice President of Marketing
and a member of the Office of the President of Comdisco. Mr. Walsh also held a
number of other positions with Comdisco, including President of the Large
Systems Division just prior to being named Executive Vice President of Marketing
in 1996.
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation paid or accrued by the Company and its subsidiaries to or on behalf
of Donald H. Sledge, President and CEO of the Company, and the four most highly
compensated executive officers of the Company (the "Named Officers") for the
fiscal year ended December 31, 1997 and for the period from January 18, 1996
(inception) to December 31, 1996. The Company has not granted stock appreciation
rights.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM ALL OTHER
ANNUAL COMPENSATION COMPENSATION COMPENSATION($)
----------------------------------------------- ------------------------ ---------------
FISCAL OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION($) WARRANTS(#) OPTIONS(#)
- --------------------------- ------ -------- ------- --------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Donald H. Sledge.............. 1997 $175,000 $87,500(1) $10,800(2) -- 150,000 $ 9,804(3)
President and Chief 1996 70,000 -- -- -- -- 110,500(4)
Executive Officer of TeleHub
Michael G. McLaughlin......... 1997 175,000 87,500(1) 17,645(2) -- 150,000 --
Chief Technology Officer of 1996 -- -- -- -- -- --
TeleHub
Timothy Carey Chandler........ 1997 150,000(5) 75,000(1) 333(6) -- 50,000 --
Senior Vice President -- 1996 68,750 -- -- -- -- --
Software Development of TTC
Barry C. Lescher.............. 1997 136,320(5) 68,268(1) 701(2) -- 100,000 --
Executive Vice President 1996 -- -- -- -- -- --
of TTC
Richard M. Harmon............. 1997 106,250(5) 62,466(1) -- 150,000 100,000 61,859(7)
Chief Financial Officer and 1996 -- -- -- -- -- --
Secretary of TeleHub
</TABLE>
- ---------------
(1) Related to 1997 accrued bonus with an option to be paid either in cash or by
a combination of cash and stock options in 1998.
(2) Car allowance.
(3) Consists of $5,000 set aside in a 401(k) plan by the Company and $4,804 paid
for life insurance premium.
(4) Consulting fees for services prior to commencement of employment on August
1, 1996.
(5) Consists of pro rated annual base salary for the portion of the year
actually worked.
(6) Allowance in lieu of certain employee benefits.
(7) Consists of $29,359 for relocation expenses and $32,500 consulting fees for
services prior to executing Mr. Harmon's employment agreement.
53
<PAGE> 59
OPTIONS GRANTED IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
% OF TOTAL OF STOCK PRICE
OPTIONS MARKET APPRECIATION
GRANTED TO EXERCISE PRICE FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN OR BASE ON DATE EXPIRATION --------------------
NAME GRANTED(#) FISCAL YEAR PRICE ($/SH) OF GRANT DATE 10%($)
- ---- ---------- ------------ ------------ -------- ---------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Donald H. Sledge................ 70,000 4.7 5.00 2.50(1) 5/1/2007 103,900
80,000 5.5 5.50 2.50(1) 5/1/2007 78,700
Michael G. McLaughlin........... 150,000 10.2 5.00 2.50(1) 5/1/2007 222,700
Timothy C. Chandler............. 50,000 3.4 5.00 2.50(1) 5/1/2007 74,200
Barry C. Lescher................ 100,000 6.8 5.00 2.50(1) 5/1/2007 148,400
Richard M. Harmon............... 100,000 6.8 5.00 2.50(1) 5/1/2007 148,400
</TABLE>
- ---------------
(1) Valued at one half of the $5.00 per share offering price of Preferred Stock
in the Spring 1997 Offering, which closed on April 30, 1997.
(2) The 5% column has been excluded since the potential realizable value would
be negative for executive grants at a 5% annual appreciation rate.
AGGREGATED OPTIONS EXERCISABLE IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS AT
FY-END (MARKET PRICE OF
VALUE REALIZED NUMBER OF UNEXERCISED SHARES AT FY-END ($8.83)
(MARKET PRICE AT OPTIONS AT FY-END(#) LESS EXERCISE PRICE)(1)
SHARES ACQUIRED EXERCISE LESS --------------------------- ---------------------------
NAME ON EXERCISE(#) EXERCISE PRICE) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- ---------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Donald H. Sledge........... -- -- 37,500 112,500 $133,625 $400,875
Michael G. McLaughlin...... -- -- 37,500 112,500 $143,625 $430,875
Timothy C. Chandler........ -- -- 12,500 37,500 $ 47,875 $143,625
Barry C. Lescher........... -- -- 25,000 75,000 $ 95,750 $287,250
Richard M. Harmon.......... -- -- 25,000 75,000 $ 95,750 $287,250
</TABLE>
- ---------------
(1) Based on the common stock offering price in the Fall 1997 Offering which
closed on December 8, 1997.
COMPENSATION PLAN
1997 STOCK OPTION PLAN. The Company's 1997 Stock Option Plan (the "Plan")
was adopted by the Board and approved by the stockholders in May 1997. A total
of 4,600,000 shares of Common Stock have been reserved for issuance under the
Plan, as amended on March 18, 1998 by the Board. As of July 15, 1998, options to
purchase 2,545,378 shares of Common Stock were outstanding under the Plan, and
no shares had been issued upon exercise of previously granted options. The Plan
provides for grants to employees of the Company (including officers and employee
directors) of "incentive stock options" ("ISOs") within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), and for
grants of nonstatutory stock options to employees (including officers and
employee directors and non-employee directors) of the Company or any subsidiary
of the Company. The Plan is administered by the Board or a committee of the
Board (the "Administrator"). The Plan is currently being administered by the
Board. The Administrator may determine the terms of the options granted,
including the exercise price, the number of shares subject to each option and
the exercisability of the option. The Administrator also has the full power to
select the individuals to whom options will be granted and to make any
combination of grants to any participants.
Options granted generally vest immediately as to 25% of the shares subject
to the option and then at a rate of 25% of the shares subject to the option on
January 1(st) of the subsequent 3 years following the grant
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<PAGE> 60
date. The term of an option is determined by the specific option agreement. No
option may be exercised by any person after its term or the Plan expires.
MANAGEMENT INCENTIVE PLAN
In June 1998, the Board directed the Compensation Committee to develop a
Management Incentive Plan that provides stock option awards to senior
management. If the Company achieves specified market valuations based upon the
value of its Common Stock from June 2, 1998 to June 2, 2000, and assuming the
completion of an initial public offering, eligible participants may receive
stock options exercisable at $14.58 per share (the estimated fair market value
of the Company's Common Stock on June 2, 1998). The aggregate number of stock
options that may be awarded under the Management Incentive Plan increases from
approximately 500,000 shares if the Company's Common Stock value is $20.00 per
share to a maximum of approximately two million shares if the Company's Common
Stock value increases to $60.00 per share.
EXECUTIVE EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Sledge and
McLaughlin, commencing January 2, 1997, Mr. Lescher commencing on January 1,
1997, Mr. Harmon commencing on May 4, 1998, Mr. Swinburne commencing January 1,
1998 and Mr. Chandler commencing April 17, 1997. The Company also has employment
agreements with certain other executives.
The Company's employment agreements with Messrs. Sledge and McLaughlin
provide for an initial five year term and Mr. Lescher's employment agreement
provides for an initial two year term. After the initial term each agreement is
automatically renewed for an additional one-year term until either party
provides 30 days notice of termination prior to the end of a term. The
agreements provide for an annual base salary and an incentive bonus determined
by the Board. Messrs. Sledge and McLaughlin also receive stock options under the
Company's Plan. If the Company terminates any of the employment agreements
without cause or if the Company or the employee terminates the respective
employment agreement upon the occurrence of a major transaction involving the
Company, then Messrs. Sledge and McLaughlin will receive a termination fee equal
to 200% of their annual salaries plus benefits and specified bonuses and Mr.
Lescher will receive 100% of his annual salary plus benefits plus a specified
bonus. Each of Messrs. Lescher, Sledge and McLaughlin is subject to a
confidentiality covenant and Messrs. Sledge and McLaughlin are each subject to a
one-year non-competition commitment following the termination of his employment.
Mr. McLaughlin may also be reimbursed for the annual premiums that he incurs for
his disability and $5,000,000 term life insurance policies.
The Company has employment agreements with Messrs. Harmon and Swinburne
which provide for an initial four-year term and thereafter one-year terms until
either party provides 30 days notice of termination prior to the end of a term.
The agreements provide for an annual base salary and an incentive bonus
determined by the Board. Messrs. Swinburne and Harmon also receive stock options
under the Company's Plan. Mr. Swinburne receives performance options if certain
criteria are met. If the Company terminates the employment agreement without
cause or if the Company or the employee terminates the employment agreement upon
the occurrence of a major transaction involving the Company, then Messrs.
Swinburne and Harmon shall each receive a termination fee equal to 100% of his
annual salary plus benefits plus a specified bonus. Payments shall only be made
upon the employee's execution of a standard release waiving all claims against
the Company. Messrs. Swinburne and Harmon are each subject to a confidentiality
covenant. In addition, Mr. Harmon is subject to a one year non-competition
commitment following termination of his employment. The Company's employment
agreement with Mr. Harmon also provides that the Company will loan Mr. Harmon up
to $400,000 for the purchase of a home upon his permanent relocation to
Illinois. The loan will be made at the market rate of interest for a period of
seven years and secured by a deed of trust on Mr. Harmon's home.
The Company's employment agreement with Mr. Chandler provides for an
initial two-year term and thereafter one-year terms until either party provides
30 days notice of termination prior to the end of a term. The agreement provides
for an annual base salary and an incentive bonus determined by the Board. If the
55
<PAGE> 61
Company terminates the employment agreement without cause, or if the Company or
Mr. Chandler terminates the employment agreement upon the occurrence of a major
transaction involving the Company, then Mr. Chandler shall receive a termination
fee equal to 50% of his annual salary plus benefits plus a specified bonus.
Payments shall only be made upon Mr. Chandler's execution of a standard release
waiving all claims against the Company. Mr. Chandler is subject to a
confidentiality covenant.
The Company has employment agreements with certain other executives. These
agreements generally have a two-year initial term and thereafter one-year
renewal terms until either party provides 30 day notice of termination prior to
the end of a term. The agreements provide for an annual base salary and an
incentive bonus determined by the Board, plus eligibility for awards under the
Company's Plan. If the Company terminates the employment without cause or if the
employment is terminated upon the occurrence of a major transaction involving
the Company, then the executive shall receive a termination fee equal to 50% to
100% of his annual salary plus benefits plus a specified bonus. Payments shall
only be made upon execution of a standard release waiving all claims against the
Company. The agreements also contain a confidentiality covenant. Certain of
these employment agreements contain a one year non-competition covenant
DIRECTOR COMPENSATION
TeleHub currently does not provide cash compensation to its Directors who
are not also employees for attendance at Board or committee meetings, but does
reimburse expenses related to such attendance (e.g., airfare or telephone
charges). Directors annually receive options to purchase 20,000 shares of Common
Stock under the stock option plan; the exercise price is market price at the
time of grant and the options vest at the start of the next fiscal year.
COMPENSATION COMMITTEE INTERLOCKS; AUDIT COMMITTEE
During 1997 and until May 31, 1998, the entire Board served as the
Compensation Committee, which determines the compensation of the Company's
executive officers. Two executive officers, Messrs. Sledge and McLaughlin served
on the Board and therefore also the Compensation Committee during 1997, while
Messr. Harmon, the Company's CFO, joined the Board (and the Compensation
Committee) in March 1998. Since June 1998, Messrs. Slevin and Pedde have been
the only members of the Compensation Committee. Since February 1996, Mr. Sledge
has served as the Chairman of United Digital and as a member of its compensation
committee. Mr. Snedegar has served as the President and a director of United
Digital since 1990. The Board has also established an Audit Committee composed
of Messrs. Walsh, Snedegar and Slevin, which recommends to the Board the
selection of independent accountants, and reviews the scope and results of the
audit and other services provided by the independent accountants.
56
<PAGE> 62
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of July 15, 1998 the number of shares of
Common Stock and Preferred Stock owned by (i) each executive officer and
Director and each person who owned of record, or was known to own beneficially,
more than five percent of the Company's outstanding Common Stock or Preferred
Stock, and (ii) executive officers and Directors as a group. Unless otherwise
indicated, the address for each of the following persons or entities is c/o
TeleHub Communications Corporation, 2033 North Main Street, Suite 340, Walnut
Creek, California 94596.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF SHARES OUTSTANDING
NAME BENEFICIALLY OWNED SHARES(1)
---- ------------------ -----------
<S> <C> <C>
5% STOCKHOLDERS:
Hartford Holdings, Ltd...................................... 5,191,950(2) 31.5%
Box 143, Cayman Islands
British West Indies
Roseville Computer Projects Limited......................... 4,100,000 25.4%
P.O. Box 556, Charleston, Nevis
West Indies
Sledge Family Trust......................................... 1,494,167(3) 9.3%
27 Cherry Hill Court
Alamo, California
EXECUTIVE OFFICERS AND DIRECTORS(4):
William W. Becker........................................... 5,266,950(5) 31.8%
Chairman of the Board of Directors
Donald H. Sledge............................................ 1,577,917(6) 9.7%
Vice-Chairman of the Board, Chief Executive Officer and
President
Michael G. McLaughlin....................................... 583,750(7) 3.5%
Chief Technology Officer and Director
Herbert H. Swinburne........................................ 25,000(8) 0.2%
President of TNS
Richard M. Harmon........................................... 506,246(9) 3.0%
Chief Financial Officer, Treasurer, Secretary and Director
Barry C. Lescher............................................ 50,000(10) 0.3%
Assistant Secretary and Director
John F. Slevin.............................................. 670,500(11) 4.0%
Director
EXECUTIVE OFFICERS AND DIRECTORS AS A GROUP (7 BENEFICIAL
OWNERS)................................................... 8,680,363(12) 47.6%
</TABLE>
- ---------------
(1) Based on 16,134,450 shares of Common Stock outstanding as of July 15, 1998
(which includes full conversion of the 3,500,000 shares of Preferred Stock
outstanding as of July 15, 1998 at the rate of 1 for 1) plus shares of
Common Stock that may be acquired by the indicated person pursuant to any
options and warrants exercisable within 60 days. Beneficial ownership is
determined in accordance with the rules of the SEC. Such shares, however,
are not deemed outstanding for purposes of computing the percentage
ownership of the other stockholders or groups of stockholders.
(2) Includes 4,384,450 shares of Common Stock, 480,000 shares of Preferred
Stock and 327,500 shares of Common Stock issuable upon the exercise of
warrants.
(3) Includes 1,479,167 shares of Common Stock, 10,000 shares of Preferred Stock
and 5,000 shares of Common Stock issuable upon exercise of warrants.
(4) Oz Pedde, John Snedegar, Martin Walsh and John Strand are Directors or
executive officers of TeleHub, however, as of June 15, 1998, they did not
beneficially own any interests in TeleHub.
(5) Includes 75,000 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days and all shares owned by HHL, of which Mr.
Becker, the Company's Chairman, is the principal shareholder.
(6) Includes 83,750 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days and all shares owned by the Sledge Family Trust,
of which Mr. Sledge is trustee and a beneficiary.
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(7) Includes 83,750 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days and 500,000 shares of Common Stock issuable upon
exercise of warrants.
(8) Includes 25,000 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days.
(9) Includes 450,000 shares of Common Stock issuable upon exercise of warrants
and 56,246 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days.
(10) Includes 50,000 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days.
(11) Includes 10,000 shares of Common Stock, 30,000 shares of Preferred Stock,
165,000 shares of Common Stock issuable upon exercise of warrants, 20,000
shares of Common Stock issuable pursuant to stock options exercisable
within 60 days, all personally owned by Mr. Slevin. Also includes 200,000
shares of Common Stock and 245,500 shares of Common Stock issuable pursuant
to warrants that are owned by Comdisco, for which Mr. Slevin serves as
Chairman and CEO.
(12) Includes 6,073,617 shares of Common Stock, 520,000 shares of Preferred
Stock, 1,693,000 shares issuable upon the exercise of warrants and 393,746
shares issuable pursuant to options exercisable within 60 days.
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<PAGE> 64
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On June 2, 1998, the Company issued to Mr. Slevin, a Director of TeleHub
and President and CEO of Comdisco, a warrant to purchase 100,000 shares of
Common Stock for $12.50 per share, exercisable until the later of ten years
after issuance or five years after an initial public offering.
On May 13, 1998, Mr. Harmon sold warrants to purchase 150,000 shares of
Common Stock, with an exercise price of $7.50, for $4.91 per warrant to three
individuals, including Mr. Slevin who purchased warrants for 50,000 shares of
Common Stock.
In May 1998, the Company received a $12 million Bridge Loan from Comdisco.
The Company repaid this Bridge Loan, including approximately $98,600 of accrued
interest, from the proceeds of the Initial Note Offering. The Bridge Loan was
collateralized by all of the Company's intangible property, including VASP(TM).
Comdisco also received a warrant to purchase 240,000 shares of Common Stock for
$10.00 per share, exercisable until May 5, 2005.
In March 1998, the Company granted to Mr. Martin Walsh, a Director, a
warrant to purchase 15,000 shares of Common Stock for $10.00 per share,
exercisable until March 4, 2001. Later in March 1998, Mr. Walsh joined TeleHub's
Board.
In February 1998, the Company loaned $112,029 to Mr. Swinburne, TNS's
President. Mr. Swinburne gave the Company an unsecured, non-interest bearing
promissory note in exchange for the loan. In May 1998 Mr. Swinburne repaid this
loan.
In December 1997, Comdisco received a warrant to purchase 5,500 shares of
Common Stock at a price of $10.00 per share, exercisable at the earlier of seven
years after issuance or two years after an initial public offering of the
Company's capital stock. Mr. Wheatley, a Comdisco executive, also received a
warrant to purchase 1,750 shares of Common Stock at a price of $7.50 per share.
In the Fall 1997 Offering, Mr. Slevin purchased one unit (10,000 shares of
Common Stock and warrants to purchase 3,500 shares of Common Stock) and Comdisco
purchased 20 units (200,000 shares of Common Stock and 70,000 warrants to
purchase Common Stock).
In November 1997, the Company loaned $250,000 to Mr. Harmon, its CFO and a
Director. Mr. Harmon gave the Company a promissory note bearing interest at 1%
over the prime rate, secured by warrants to purchase 150,000 shares of Common
Stock at $7.50 per share. Mr. Harmon repaid this loan in May 1998.
In the Spring 1997 Offering, Mr. Slevin purchased 1.5 units (30,000 shares
of Preferred Stock and warrants to purchase 5,000 shares of Common Stock). See
"Security Ownership of Certain Beneficial Owners and Management."
In April 1997, the Company entered into an equipment lease financing
facility with Comdisco. As of March 31, 1998, the Company had utilized four
installments of this facility for a total of $6,156,407. These installments have
quarterly lease rate factors ranging from 8 1/2% to 9 1/2%, have terms of 3 to 4
years, have aggregate quarterly payments of approximately $460,000 and a
repurchase option for fair market value at the end of the term.
In December 1996, HHL agreed to provide a bridge loan of up to $1.0 million
to the Company with an interest rate of 17% per annum. The Company repaid the
principal and accrued interest on this loan in March 1997 from the net proceeds
of the Spring 1997 Offering. Concurrently, the Company issued to HHL 134,450
additional shares of Common Stock pursuant to the terms of obligations owed by
the Company to HHL, including the bridge loan and the Indemnification Obligation
(as defined). In connection with the issuance of these shares, the Company
accepted a note from HHL for $40,000 which was subsequently paid.
During 1996, HHL provided consulting services to the Company with a value
of $169,000, which the Company paid through the Spring 1997 Offering issuance of
33,800 shares of Preferred Stock. HHL is the Company's largest shareholder and
Mr. William Becker, the Company's Chairman, is a principal and the primary
shareholder of HHL. The Company also has a consulting agreement with
International Telecommunications Consultants, an affiliate of HHL. This
agreement provides for a $175,000 annual consulting fee. The
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<PAGE> 65
Company has been informed that HHL is in preliminary negotiations for a business
transaction involving the Australasian joint venture partner. See
"Business -- TTC Customer Relationships." HHL is also a client of Watson &
Associates, an affiliate of Director Oz Pedde.
During 1996, the Company agreed to indemnify HHL (the "Indemnification
Obligation") from any claims and liabilities that might be incurred by HHL
through its efforts to assist in the placement of $3.0 million of securities of
Cam-Net Communications Network Inc. ("Cam-Net"), a Canadian company which
proposed merging with the Company. Parties unrelated to HHL had advanced
$600,000 on a private placement of securities of Cam-Net. When the proposed
merger was terminated, the securities offering by Cam-Net was also canceled, and
HHL was required to repay $600,000 pursuant to its arrangement with the
advancing party. The Company fulfilled its Indemnification Obligation to HHL by
issuing 120,000 shares of Preferred Stock and 60,000 warrants to purchase Common
Stock at $7.50 per share in the Spring 1997 Offering.
In January 1996, Roseville Computer Projects Ltd. ("Roseville") contributed
software to the Company in exchange for 151 shares of capital stock of TNS. In
March 1996, Roseville assigned all right, title and interest in the VASP(TM)
software to TNS in exchange for an additional 274 shares of capital stock of
TNS. In January 1997, Roseville exchanged all of its TNS shares for 4,250,000
shares of TeleHub Common Stock. In July 1997, Roseville sold its network
databases and libraries and assigned all associated right, title and interest to
the Company for $485,000, of which $200,000 was paid in August 1997 and the
$285,000 balance of which, plus interest at the rate of 12% per annum, was paid
in January 1998. A Roseville subsidiary provided consulting services (primarily
maintenance of the network data bases and libraries) to the Company for a
$20,000 monthly fee. The Roseville subsidiary received a total of $325,000 under
this consulting arrangement, which was terminated on January 1, 1998.
During 1996, the Company contracted for software development services with
Access Point Communications Corporation ("APCC"), an entity controlled by Mr.
McLaughlin, a Director and the CTO of TTC. The Company paid APCC $974,915 for
these services during 1996, and also reimbursed APCC $36,309 for operating
expenses advanced by APCC. The Company also incurred $550,000 in management fees
to APCC for services provided by Messrs. McLaughlin and Lescher and other TNS
principals and for network library maintenance fees. Of the $974,915 paid to
APCC, a subsidiary of Roseville received $300,000 as a subcontractor to APCC.
The Company's relationship with APCC terminated at the end of 1996, at which
time Messrs. McLaughlin and Lescher became full-time Company employees.
HHL and the Sledge Family Trust (the "Trust"), significant Company
shareholders, advanced initial funding for development of the Company's
business. Mr. Donald Sledge, the Company's Vice Chairman, CEO and President, is
a trustee and beneficiary of the Trust. During 1996, HHL loaned the Company
$1,350,000, evidenced by two 7.5% promissory notes, and $411,243, evidenced by a
12% promissory note, and the Trust made a $50,000 loan to the Company, evidenced
by a 7.5% promissory note. Concurrently with the Spring 1997 Offering, HHL
exchanged the promissory notes, related accrued interest, the Indemnification
Obligation and accounts payable balances totaling $2.4 million for 480,000
shares of Preferred Stock and the Trust exchanged its $50,000 promissory note
for 10,000 shares of Preferred Stock. In conjunction with the exchange, HHL and
the Trust also received warrants to purchase, respectively, 240,000 and 5,000
shares of Common Stock at $7.50 per share.
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DESCRIPTION OF THE NOTES
The following discussion summarizes certain provisions of the Notes; except
where otherwise indicated, this summary applies to both the Old Notes and the
New Notes. The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes, except that the Exchange Offer
will be registered under the Securities Act, and therefore the New Notes will
not be subject to certain transfer restrictions and registration rights
applicable to the Old Notes. See "The Exchange Offer."
The Notes are issued under the Indenture, which is subject to and governed
by the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The
following summary of certain provisions of the Indenture does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
the Trust Indenture Act, and to all of the provisions of the Indenture,
including the definitions of certain terms therein and those terms made a part
of the Indenture by reference to the Trust Indenture Act, as in effect on the
date of the Indenture. The definitions of certain capitalized terms used in the
following summary are set forth below under "Certain Definitions." A copy of the
Indenture may be obtained upon request from the Issuer, 1375 Tri-State Parkway,
Gurnee, Illinois, 60031; (847) 782-2000.
EXCHANGE OFFER
The exchange of Old Notes for New Notes pursuant to the Exchange Offer will
not be treated as an exchange or other taxable event for U.S. Federal income tax
purposes because, under the Regulations, the New Notes do not differ materially
in kind or extent from the Old Notes. Rather, the New Notes received by a holder
will be treated as a continuation of the Old Notes in the hands of such holder.
As a result, there should not be any U.S. Federal income tax consequences to
holders from the exchange of Old Notes for New Notes pursuant to the Exchange
Offer and any such holder will have the same tax basis and holding period in the
New Notes as it had in the Old Notes immediately before the exchange.
GENERAL
The Old Notes were issued pursuant to the Indenture among the Company, the
Guarantors and State Street Bank and Trust Company, as trustee (the "Trustee"),
in a private transaction that was not subject to the registration requirements
of the Securities Act. The New Notes will be issued pursuant to the Indenture in
the Exchange Offer, which will be registered under the Securities Act. The terms
of the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The Notes are subject to all such terms, and Holders of
Notes are referred to the Indenture and the Trust Indenture Act for a statement
thereof. The following summary of certain provisions of the Notes, the Indenture
and the Note Registration Rights Agreement does not purport to be complete and
is qualified in its entirety by reference to the Notes, the Indenture and the
Note Registration Rights Agreement, including the definitions therein of certain
terms used below. A copy of the proposed forms of Notes, the Indenture and the
Note Registration Rights Agreement is available as set forth below under
"-- Additional Information." The definitions of certain terms used in the
following summary are set forth below under "-- Certain Definitions." For
purposes of this "Description of Notes," the term "Company" refers only to
TeleHub Communications Corporation and not to any of its Subsidiaries.
The Notes are general unsecured obligations of the Company ranking senior
to all existing and future subordinated Indebtedness of the Company and pari
passu in right of payment with all other existing and future Debt of the
Company. As of March 31, 1998, after giving pro forma effect to the Initial Note
Offering and the application of the net proceeds therefrom, the Company would
have had approximately $73.4 million of total indebtedness outstanding ($12.2
million of which would have constituted secured indebtedness) and none of which
would have constituted subordinated indebtedness. The Indenture permits the
Company and its Subsidiaries to incur additional indebtedness, including
additional Senior Debt, subject to certain restrictions. See "-- Certain
Covenants -- Limitations on Incurrence of Indebtedness." A significant portion
of the consolidated operations of the Company are conducted through its
Subsidiaries and, therefore, the Company is dependent upon the cash flow of its
Subsidiaries to meet its obligations, including its obligations under the Notes.
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<PAGE> 67
The Company's payment obligations under the Notes are jointly and severally
guaranteed, on a senior unsecured basis, by all of the Company's existing
Subsidiaries and all Subsidiaries created or acquired by the Company in the
future. The guarantee of each of the Guarantors ranks senior in right and
priority of payment to all subordinated indebtedness of such Guarantor and ranks
pari passu in right and priority of payment with all other indebtedness of such
Guarantor that is not expressly so subordinated to such guarantee, except to the
extent of any collateral securing such other indebtedness. See "-- Guarantees."
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount at maturity to $125
million and mature on July 31, 2005. The Notes were issued at a substantial
discount from their principal amount at maturity, to generate gross proceeds of
approximately $83.6 million. Cash interest on the Notes will not accrue prior to
July 31, 2001. Through July 31, 2001, the Notes will accrete at a rate of
13 7/8% compounded semi-annually. Thereafter, interest on the Notes will accrue
at a rate of 13 7/8% per annum and will be payable semi-annually, in cash, on
January 31 and July 31 of each year, commencing on January 31, 2002, to Holders
of record on the immediately preceding January 15 and July 15. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal or Accreted Value of and premium, interest and Liquidated Damages, if
any, on the Notes will be payable at the office or agency of the Company
maintained for such purpose or, at the option of the Company, payment of
interest and Liquidated Damages, if any, may be made by check mailed to the
Holders of the Notes at their respective addresses set forth in the register of
Holders of Notes; provided that all payments with respect to Notes, the Holders
of which have given wire transfer instructions to the Company, will be required
to be made by wire transfer of immediately available funds to the accounts
specified by the Holders thereof. Until otherwise designated by the Company, the
Company's office or agency will be the office of the Trustee maintained for such
purpose. The Notes were issued in denominations of $1,000 and integral multiples
thereof.
GUARANTEES
The obligations of the Company under the Notes are guaranteed, jointly and
severally, by its Subsidiaries and such other Persons that become Subsidiaries
after the Issue Date and each of their respective successors. The Guarantee
issued by each Guarantor ranks senior in right and priority of payment to all
other Indebtedness of such Guarantor that is expressly subordinated to the
guarantee of the Notes and ranks pari passu in right and priority of payment
with all other Indebtedness of such Guarantor that is not expressly so
subordinated to such Guarantee, except to the extent of any collateral securing
such other Indebtedness.
The Indenture contains provisions the intent of which is to provide that
the obligations of each Subsidiary with respect to its Guarantee will be limited
to the maximum amount that will, after giving effect to all other contingent and
fixed liabilities of such Subsidiary and after giving effect to any collections
from, rights to receive contribution from, or payments made by or on behalf of
any other Subsidiary in respect of the obligations of such other Subsidiary
under its Guarantee or pursuant to its contribution obligations under the
Indenture, result in the obligations of such Subsidiary under its Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under any applicable
federal or state law. Each Subsidiary that makes a payment or distribution under
a Guarantee is entitled to contribution from each other Subsidiary so long as
the exercise of such right does not impair the rights of the Holders of the
Notes under the Guarantees.
The Indenture provides that in the event of: (i) a sale or other
disposition of all or substantially all of the assets of any Subsidiary or the
sale of a Subsidiary, by way of merger, consolidation or otherwise or (ii) a
sale or other disposition of all of the Capital Stock of any Subsidiary, then
such Subsidiary or the entity acquiring the assets, as applicable, shall be
released and relieved of any obligations under its guarantee, provided that the
Company complies with the provisions of the covenant entitled "-- Asset Sales."
OPTIONAL REDEMPTION
The Notes are not redeemable at the Company's option before July 31, 2002.
Thereafter, the Notes are subject to redemption at the option of the Company, in
whole or in part, upon not less than 30 nor more than
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60 days' notice, at the redemption prices (expressed as percentages of principal
amount at maturity) set forth below, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on July 31 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2002........................................................ 106.9375%
2003........................................................ 103.46889%
2004 and thereafter......................................... 100.0000%
</TABLE>
Notwithstanding the foregoing, upon the occurrence of a TNS/TTC
Transaction, the Company may, at its option, by giving notice of redemption at
any time not less than 30 nor more than 60 days prior to such transaction,
redeem all, but not less than all, of the outstanding Notes concurrently with
the consummation of such transaction at a redemption price equal to, at any time
on or prior to July 31, 2002, 100% of the Accreted Value thereof, plus accrued
and unpaid interest and Liquidated Damages, if any, thereon, and the applicable
Make-Whole Premium and after such date at the amount that would be payable to
the holders if the Company on such date were to redeem the Notes. On the date
fixed for redemption in connection with a TNS/TTC Transaction, the Company will
deposit with the Trustee sufficient monies to redeem in full the Notes and
deliver to the Trustee a solvency opinion (from a nationally recognized
investment bank with expertise in giving solvency opinions) dated the date of
the consummation of such transaction and stating that after giving effect to the
redemption of the Notes the Company will be solvent.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate; provided
that no Notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount at
maturity thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the redemption date, interest
shall cease to accrue on Notes or portions thereof called for redemption.
MANDATORY REDEMPTION
Except as set forth below under "-- Repurchase at the Option of Holders,"
the Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control or a TNS/TTC Transaction
Upon the occurrence of a Change of Control, the Company will be required to
make an offer (a "Change of Control Offer") to repurchase all or any part (equal
to $1,000 face amount or an integral multiple thereof) of each Holder's Notes at
an offer price in cash equal to 101% of the aggregate principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the
date of repurchase (or, in the case of repurchase of Notes prior to July 31,
2002, at a purchase price equal to 101% of the Accreted Value thereof, plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the date
of repurchase) (the "Change of Control Payment").
Upon the occurrence of a TNS/TTC Transaction, if the Company has not
exercise its right to redeem the Notes concurrently with the consummation of the
TNS/TTC Transaction or has not made an offer to each Holder of Notes to
repurchase the Notes concurrently with the consummation of such transaction in a
manner
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that otherwise complies with the notice requirements and clauses (a) and (b) of
this provision, the Company will be required to (a) deposit with the Trustee
upon consummation of such transaction sufficient monies to redeem in full the
Notes, (b) deliver to the Trustee a solvency opinion (from a nationally
recognized investment bank with expertise in giving solvency opinions) dated the
date of the consummation of such transaction and stating that after giving
effect to the redemption of the Notes the Company will be solvent and (c) within
ten days of the consummation of such transaction make an offer (a "TNS/TTC Put
Option Offer") to each Holder to repurchase all or any part (equal to $1,000
face amount or an integral multiple thereof) of each Holder's Notes at an offer
price in cash equal to, at any time on or prior to July 1, 2002, the Accreted
Value thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon, and the applicable Make-Whole Premium and after such date an amount
that would be payable to the Holders for each Note to be purchased if the
Company on such date were to redeem the Notes (the "TNS/TTC Put Option
Payment").
Within ten days following any Change of Control the Company will mail a
notice to each Holder describing the transaction that constitutes the Change of
Control and offering to repurchase the Notes on the date specified in such
notice, which date shall be no earlier than 30 days and no later than 60 ways
from the date such notice is mailed (the "Change of Control Payment Date"). At
any time within 60 days prior to or within 10 days after a TNS/TTC Transaction,
the Company may and in certain circumstances will mail a notice to each Holder
describing the transaction that constitutes the TNS/TTC Transaction and offering
to repurchase the Notes on the date specified in such notice, which date shall
be no earlier than 30 days and no later than 60 days from the date such notice
is mailed (the "TNS/TTC Put Option Payment Date"). The Company will comply with
the requirements of Rule 14e-1 under the Exchange Act and any other securities
laws and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control or TNS/TTC Transaction, as the case may be.
On the Change of Control Payment Date or the TNS/TTC Put Option Payment
Date, as the case may be, the Company will, to the extent lawful, (i) accept for
payment all Notes or portions thereof properly tendered pursuant to the Change
of Control Offer or TNS/TTC Put Option Offer, as the case may be, (ii) deposit
with the paying agent appointed by the Company as contemplated by the Indenture
(the "Paying Agent"), unless previously deposited, an amount equal to the Change
of Control Payment or TNS/TTC Put Option Payment, as the case may be, in respect
of all Notes or portions thereof so tendered and (iii) deliver or cause to be
delivered to the Trustee the Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of Notes or portions thereof
being purchased by the Company. The Paying Agent will promptly mail to each
Holder of Notes so tendered the Change of Control Payment or TNS/TTC Put Option
Payment, as the case may be, for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount at maturity of $1,000 or an integral multiple thereof. The Indenture
provides that, prior to complying with the provisions of this covenant, but in
any event within 90 days following a Change of Control, the Company will either
repay all outstanding Senior Debt or obtain the requisite consents, if any,
under all agreements governing outstanding Senior Debt to permit the repurchase
of Notes required by this covenant. The Company will publicly announce the
results of the Change of Control Offer or TNS/TTC Put Option Offer, as the case
may be, on or as soon as practicable after the Change of Control Payment Date or
the TNS/TTC Put Option Payment Date, as the case may be.
Except as described above with respect to a Change of Control or a TNS/TTC
Transaction, the Indenture does not contain provisions that permit the Holders
of the Notes to require that the Company repurchase or redeem the Notes in the
event of a takeover, recapitalization or similar transaction.
Due to the leveraged structure of the Company and the effective
subordination of the Notes to secured Indebtedness of the Company and of the
Company's Subsidiaries, the Company may not have sufficient funds available to
purchase the Notes tendered in response to a Change of Control Offer. In
addition, agreements relating to Indebtedness of the Company or the Company's
Subsidiaries may contain prohibitions or restrictions on the Company's ability
to effect a Change of Control Payment.
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The Company will not be required to make a Change of Control Offer or
TNS/TTC Put Option Offer, as the case may be, upon a Change of Control or a
TNS/TTC Transaction if a third party makes the Change of Control Offer or
TNS/TTC Put Option Offer, as the case may be, in the manner, at the times and
otherwise in compliance with the requirements set forth in the Indenture
applicable to a Change of Control Offer or TNS/TTC Put Option Offer, as the case
may be, made by the Company and purchases all Notes validly tendered and not
withdrawn under such Change of Control Offer or TNS/TTC Put Option Offer, as the
case may be.
Asset Sales
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, engage in an Asset Sale unless (i) the Company or such
Subsidiary, as the case may be, receives consideration at the time of such Asset
Sale at least equal to the fair market value (evidenced by a resolution of the
Board of Directors set forth in an Officers' Certificate delivered to the
Trustee) of the assets or Equity Interests issued or sold or otherwise disposed
of and (ii) at least 80% of the consideration therefor received by the Company
or such Subsidiary is in the form of Cash Equivalents; provided that the amount
of (a) any liabilities (as shown on the Company's or such Subsidiary's most
recent balance sheet) of the Company or any Subsidiary (other than contingent
liabilities and liabilities that are by their terms subordinated to the Notes)
that are assumed by the transferee of any such assets pursuant to a customary
novation agreement that releases the Company or such Subsidiary from further
liability and (b) any notes or other obligations received by the Company or such
Subsidiary from such transferee that are immediately converted by the Company or
such Subsidiary into Cash Equivalents (to the extent of the cash received) shall
be deemed to be Cash Equivalents for purposes of this provision.
Within 270 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or such Subsidiary may apply such Net Proceeds (i) to permanently
reduce borrowings under the Bank Credit Facility (and to correspondingly reduce
commitments with respect thereto) or (ii) to make capital expenditures or
acquire long-term assets in the same line of business as the Company was engaged
immediately prior to such Asset Sale or, in the case of a sale of accounts
receivable in connection with any accounts receivable financing, for working
capital purposes. Pending the final application of any such Net Proceeds, the
Company may temporarily reduce senior indebtedness or otherwise invest such Net
Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds
from Asset Sales that are not applied or invested as provided in the first
sentence of this paragraph will be deemed to constitute "Excess Proceeds." When
the aggregate amount of Excess Proceeds exceeds $2.0 million, the Company will
be required to make an offer to all Holders of Notes (an "Asset Sale Offer") to
purchase the maximum principal amount at maturity of Notes that may be purchased
out of the Excess Proceeds, at an offer price in cash in an amount equal to 101%
of the Accreted Value thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon and if such purchase occurs after July 31, 2001,
accrued and unpaid interest to the date of purchase, in accordance with the
procedures set forth in the Indenture. To the extent that the aggregate Accreted
Value of Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes (subject to the restrictions of the Indenture). If the
Accreted Value of Notes surrendered by Holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro
rata basis. Upon completion of such offer to purchase, the amount of Excess
Proceeds shall be reset at zero.
CERTAIN COVENANTS
Limitations on Restricted Payments
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, (i) declare or pay any dividend
or make any other payment or distribution on account of the Company's or any of
its Subsidiaries' Equity Interests (including, without limitation, any payment
in connection with any merger or consolidation involving the Company), other
than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company or dividends or distributions payable to the
Company or any Wholly Owned Subsidiary of the Company; (ii) purchase, redeem or
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otherwise acquire or retire for value (including, without limitation, any
payment in connection with any merger or consolidation involving the Company)
any Equity Interests of the Company or any Subsidiary or other Affiliate of the
Company (other than any such Equity Interests owned by the Company or any Wholly
Owned Subsidiary of the Company); (iii) make any principal payment on, or
purchase, redeem, defease or otherwise acquire or retire for value, prior to a
scheduled mandatory sinking fund payment date or final maturity date, any
Indebtedness that is subordinated to the Notes or any Guarantee; or (iv) make
any Restricted Investment (all such payments and other actions set forth in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments"), unless, at the time of and after giving effect to such Restricted
Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter measurement
period, have been permitted by virtue of the Company's Consolidated
Leverage Ratio, to incur at least $1.00 of additional Indebtedness pursuant
to the Consolidated Leverage Ratio test set forth in the covenant described
below under the caption "--Limitations on Incurrence of Indebtedness"; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Subsidiaries on or after
the Issue Date (excluding Restricted Payments permitted by clauses (ii),
(iii) and (iv) of the next succeeding paragraph), is less than the sum of
(1) 50% of the Consolidated Net Income of the Company for the period (taken
as one accounting period) from the beginning of the first fiscal quarter
commencing after the Issue Date to the end of the Company's most recently
ended fiscal quarter for which financial statements are available at the
time of such Restricted Payment (or, if such Consolidated Net Income for
such period is a deficit, less 100% of such deficit), plus (2) 100% of the
aggregate net cash proceeds received by the Company as capital
contributions or from the issue or sale since the Issue Date of Equity
Interests of the Company or of debt securities of the Company that have
been converted into such Equity Interests (other than (A) Equity Interests
(or convertible debt securities) sold to a Subsidiary of the Company,(B)
Disqualified Stock or debt securities that have been converted into
Disqualified Stock and (C) any such net cash proceeds utilized as the basis
to incur Indebtedness under clause (viii) of the covenant "-- Limitations
on Incurrence of Indebtedness"), plus (3) to the extent that any Restricted
Investment that was made after the Issue Date is sold for cash or otherwise
liquidated or repaid for cash, the lesser of (A) the cash return of capital
with respect to such Restricted Investment (less the cost of disposition,
if any) and (B) the initial amount of such Restricted Investments (but, in
either case, only to the extent not included in subclause (1) of this
clause (c)).
The foregoing provisions will not prohibit: (i) the payment of any dividend
or other distribution within 60 days after the date of declaration thereof, if
at said date of declaration such payment would have complied with the provisions
of the Indenture; (ii) the redemption, repurchase, retirement or other
acquisition of any Equity Interests of the Company in exchange for, or out of
the proceeds of, the substantially concurrent sale (other than to a Subsidiary
of the Company) of other Equity Interests of the Company (other than any
Disqualified Stock); provided that the amount of any such net cash proceeds that
are utilized for any such redemption, repurchase, retirement or other
acquisition shall be excluded from clause (c) of the preceding paragraph; (iii)
the defeasance, redemption or repurchase of subordinated Indebtedness with the
net cash proceeds from an incurrence of Permitted Refinancing Debt or the
substantially concurrent sale (other than to a Subsidiary of the Company) of
Equity Interests of the Company (other than Disqualified Stock); provided that
the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement or other acquisition shall be excluded from
clause (c) of the preceding paragraph; (iv) the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests held by any member
of the Company's (or any of its Subsidiaries') management pursuant to any
management equity subscription agreement, stock option or similar employee
incentive arrangement; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed
$1.0 million in any twelve-month period; and provided, further, that such
repurchase, redemption or other
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acquisition or retirement may not include any Equity Interests owned, directly
or indirectly, by the Principals; and (v) any dividend or distribution in the
form of all of the capital stock of TNS or TTC or all or substantially all of
the assets comprising TNS's ATM Network or TTC's business, provided that no
assets of the Company or any of its other Subsidiaries shall have been or will
be transferred or licensed to the Subsidiary being divested by the Company other
than on an arm's-length basis and in the ordinary course and provided, further,
that concurrently with the consummation of such transaction (i) the Company
deposits with the Trustee sufficient monies to redeem in full the Notes and
concurrently therewith redeems the Notes as set forth under "-- Optional
Redemption" or if the Company has prior to such transaction given holders of the
Notes the right to put the Notes to the Company concurrently with the
consummation of such transaction, then the Company will only be obligated to
deposit with the Trustee sufficient monies to redeem in full those Notes as to
which Holders have demanded redemption and (ii) the Company delivers to the
Trustee a solvency opinion (from a nationally recognized investment bank with
expertise in giving solvency opinions), dated the date of the consummation of
such transaction and stating that after giving effect to the redemption of the
Notes as described above the Company will be solvent, provided, that any such
dividend or distribution shall nonetheless be treated as a Restricted Payment
for all other purposes including without limitation under clause (c).
The amount of all Restricted Payments other than cash shall be the fair
market value (evidenced by an Officers' Certificate delivered to the Trustee) on
the date of the Restricted Payment of the asset(s) or securities proposed to be
transferred by the Company or such Subsidiary, as the case may be, pursuant to
the Restricted Payment. The fair market value of any non-cash Restricted Payment
in excess of $2.5 million shall be determined by the Board of Directors of the
Company whose resolution with respect thereto shall be delivered to the Trustee,
such determination to be based upon an opinion or appraisal issued by an
unaffiliated accounting, appraisal or investment banking firm of national
standing. Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "Restricted Payments" were computed, which
calculations may be based upon the Company's latest available financial
statements.
LIMITATIONS ON INCURRENCE OF INDEBTEDNESS
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt); provided, however, that, so long as no Default or Event of
Default has occurred and is continuing, the Company and any Guarantor may incur
Indebtedness (including Acquired Debt) if the Consolidated Leverage Ratio is
less than or equal to 5.50 to 1.00.
The foregoing provisions will not apply to:
(i) the incurrence by the Company and the Guarantors of Indebtedness
pursuant to the Bank Credit Facility in an aggregate principal amount not
to exceed 80% percent of the Company's receivables that are less than 60
days past due at any one time outstanding less any Net Proceeds of Asset
Sales applied to permanently reduce the Bank Credit Facility pursuant to
the provisions of the Indenture described under "Repurchase at the Option
of Holders -- Asset Sales;"
(ii) the incurrence by the Company and its Subsidiaries of Existing
Indebtedness;
(iii) the incurrence by the Company and its Subsidiaries of
Indebtedness represented by the Notes, the Guarantees, the Exchange Notes
and the Guarantees thereunder, and the Indenture;
(iv) the incurrence by the Company or any of its Subsidiaries of
Indebtedness (A) represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment used in the
business of the Company or such Subsidiary or (B) in connection with the
acquisition of assets or a new Subsidiary; provided, that the aggregate
principal
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amount (or accreted value, as applicable) of Indebtedness incurred pursuant
to clause (A) and (B) of this clause (iv), together with any other
outstanding Indebtedness incurred pursuant to this clause (iv), does not
exceed $10 million at any one time outstanding;
(v) the incurrence of intercompany Indebtedness between or among the
Company and any of its Wholly Owned Subsidiaries; provided that any
subsequent issuance or transfer of Equity Interests that results in any
such Indebtedness being held by a Person other than the Company or a Wholly
Owned Subsidiary of the Company, or any sale or other transfer of any such
Indebtedness to a Person that is neither the Company nor a Wholly Owned
Subsidiary of the Company, shall be deemed to constitute an incurrence of
such Indebtedness by the Company or such Subsidiary, as the case may be;
(vi) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Debt in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund
Indebtedness that was permitted by the Indenture to be incurred (other than
Indebtedness incurred under clause (i) above);
(vii) the incurrence by the Company or any of its Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or hedging
interest rate risk with respect to any floating rate indebtedness that is
permitted by the terms of the Indenture to be outstanding; and
(viii) the incurrence by the Company of Indebtedness (other than
secured Acquired Debt) in an aggregate principal amount not to exceed 1.0
times the sum of the net cash proceeds received by the Company after the
date of the Indenture (other than in respect of Disqualified Stock) in
connection with any Public Offerings; provided that such Indebtedness (i)
does not mature prior to the maturity of the Notes , (ii) has a Weighted
Average Life to Maturity greater than the Notes, and (iii) is made
expressly subordinated to the Notes.
LIMITATIONS ON LIENS
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer
to exist any Lien on any asset now owned or hereafter acquired, or any income or
profits therefrom, or assign or convey any right to receive income therefrom,
unless the Notes are directly secured equally and ratably with the obligation or
liability secured by such Lien and except Permitted Liens.
LIMITATIONS ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Subsidiary to (i)(a) pay dividends or make any other
distributions to the Company or any of its Subsidiaries on its (1) Capital Stock
or (2) with respect to any other interest or participation in, or measured by,
its profits, or (b) pay any indebtedness owed to the Company or any of its
Subsidiaries, (ii) make loans or advances to the Company or any of its
Subsidiaries or (iii) transfer any of its properties or assets to the Company or
any of its Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (a) Existing Indebtedness as in effect on the date of the
Indenture, (b) the Indenture, the Notes and the Guarantees, (c) applicable law,
(d) any instrument governing Indebtedness or Capital Stock of a Person acquired
by the Company or any of its Subsidiaries as in effect at the time of such
acquisition (except to the extent such Indebtedness was incurred in connection
with or in contemplation of such acquisition), which encumbrance or restriction
is not applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, so acquired,
provided that, in the case of Indebtedness, such Indebtedness was permitted to
be incurred by the terms of the Indenture, (e) customary non-assignment
provisions in leases entered into in the ordinary course of business and
consistent with past practices, (f) purchase money obligations for property
acquired in the ordinary course of business that impose restrictions of the
nature described in clause (iii) above on the property so acquired, or (g)
Permitted Refinancing Debt, provided that the restrictions contained in the
agreements governing such
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Permitted Refinancing Debt are no more restrictive taken as a whole than those
contained in the agreements governing the Indebtedness being refinanced.
LIMITATIONS ON MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving entity), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another
corporation, Person or entity, unless (i) the Company is the surviving entity or
the entity or the Person formed by or surviving any such consolidation or merger
(if other than the Company) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made is a corporation organized
or existing under the laws of the United States, any state thereof or the
District of Columbia; (ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) or the entity or Person to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made assumes all the obligations of the Company under the Notes,
the Guarantees and the Indenture pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee; (iii) immediately after such
transaction, no Default or Event of Default exists; and (iv) except in the case
of a merger of the Company with or into a Wholly Owned Subsidiary of the
Company, the Company or the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (a) will have Consolidated Net Worth immediately after the transaction
equal to or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction and (b) at the time of such transaction and
immediately after giving effect to such transaction, would be able to incur at
least $1.00 of additional Indebtedness pursuant to the Consolidated Leverage
Ratio test set forth in the first paragraph of the covenant described above
under the caption "-- Limitations on Incurrence of Indebtedness." The Company
will not be obligated to comply with provisions of this covenant in connection
with a TNS/TTC Transaction so long as concurrently with the consummation of such
transaction (i) the Company deposits with the Trustee sufficient monies to
redeem in full the Notes and concurrently therewith redeems the Notes as set
forth under "-- Optional Redemption" or if the Company has prior to such
transaction given holders of the Notes the right to put the Notes to the Company
concurrently with the consummation of such transaction, then the Company will
only be obligated to deposit with the Trustee sufficient monies to redeem in
full those Notes as to which Holders have demanded redemption and (ii) the
Company delivers to the Trustee a solvency opinion (from a nationally recognized
investment bank with expertise in giving solvency opinions) dated the date of
the consummation of such transaction and stating that after giving effect to the
redemption of the Notes as described above the Company will be solvent.
LIMITATIONS ON TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, make any payment to, or sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Subsidiary than those that would
have been obtained in a comparable transaction (as determined in good faith by
the Board of Directors) with an unrelated Person and (ii) the Company delivers
to the Trustee (a) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess of
$1.0 million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above and that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $5.0 million, an opinion as to the fairness
to the Holders of such Affiliate Transaction from a financial point of view
issued by an unaffiliated accounting, appraisal or investment banking firm of
national standing. Notwithstanding the foregoing, transactions between or among
the Company and its Subsidiaries and Restricted Payments and Permitted
Investments
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that are permitted by the provisions of the Indenture described under the
caption "Restricted Payments," in each case shall not be deemed Affiliate
Transactions.
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF SUBSIDIARIES
The Indenture provides that the Company (i) will not, and will not permit
any of its Subsidiaries to, transfer, convey, sell or otherwise dispose of any
Capital Stock of any Subsidiary of the Company to any Person (other than the
Company or a Wholly Owned Subsidiary of the Company), unless (a) such transfer,
conveyance, sale or other disposition is of all of the Capital Stock of such
Subsidiary owned by the Company and its Subsidiaries and (b) such transaction is
conducted in accordance with the covenant described above under the caption
"-- Asset Sales" and (ii) will not permit any Subsidiary of the Company to issue
any of its Equity Interests (other than, if required by law, shares of its
Capital Stock constituting directors' qualifying shares) to any Person other
than to the Company or a Wholly Owned Subsidiary of the Company. The Company
will not be obligated to comply with the provisions of this covenant in
connection with the sale, assignment, transfer, lease, conveyance or other
disposition of up to 50% of the capital stock of TNS provided that no assets of
the Company or any of its other Subsidiaries shall have been or will be
transferred or licensed to TNS other than on an arm's-length basis and in the
ordinary course and immediately after giving effect to such transaction and any
Restricted Payment made from the Net Proceeds of such transaction (assuming for
purposes of such definition that such transaction was an Asset Sale) the Notes
are rated investment grade by Moody's or Standard & Poor's and the Company
otherwise complies with the covenant "-- Asset Sales."
BUSINESS ACTIVITIES
The Indenture provides that the Company may not, directly or indirectly,
engage in any business other than the Telecommunications Business.
PAYMENTS FOR CONSENT
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries or Affiliates to, directly or indirectly, pay or cause to be
paid any consideration, whether by way of interest, fee or otherwise, to any
Holder of any Notes for or as an inducement to any consent, waiver or amendment
of any of the terms or provisions of the Indenture or the Notes unless such
consideration is offered to be paid or is paid to all Holders of the Notes that
consent, waive or agree to an amendment in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the SEC, so long as any Notes are outstanding, the Company will
furnish to the Holders of Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the SEC on
Forms 10-Q and 10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of operations of
the Company and its Subsidiaries and, with respect to the annual information
only, a report thereon by the Company's certified independent accountants and
(ii) all current reports that would be required to be filed with the SEC on Form
8-K if the Company were required to file such reports. In addition, whether or
not required by the rules and regulations of the SEC, the Company will file a
copy of all such information and reports with the SEC for public availability
(unless the SEC will not accept such a filing) and make such information
available to securities analysts and prospective investors upon request. In
addition, the Company has agreed that, for so long as any Notes remain
outstanding, it will furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
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EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to the Notes; (ii) default in payment
when due of the principal of or premium on the Notes; (iii) failure by the
Company or a Guarantor, if applicable, to comply with the provisions described
under the captions "-- Change of Control," "-- Asset Sales," "-- Limitations on
Restricted Payments," "-- Limitations on Issuances and Sales of Capital Stock of
Subsidiaries," or "Limitations on Merger, Consolidation or Sale of Assets;" (iv)
failure by the Company or a Guarantor, if applicable, for 30 days after notice
to comply with any of its other agreements in the Indenture or the Notes; (v)
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for money
borrowed by the Company or any of its Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Subsidiaries), whether such Indebtedness
or guarantee now exists, or is created after the date of the Indenture, which
default (a) is caused by a failure to pay the principal of or premium, if any,
or interest on such Indebtedness prior to the expiration of the grace period
provided in respect of such Indebtedness (a "Payment Default") or (b) results in
the acceleration of such Indebtedness prior to its express maturity and, in each
case, the principal amount of any such Indebtedness, together with the principal
amount of any other such Indebtedness under which there has been a Payment
Default or the maturity of which has been so accelerated, aggregates $2.0
million or more; (vi) failure by the Company or any of its Subsidiaries to pay
final judgments aggregating in excess of $2.0 million and either (a) any
creditor commences enforcement proceedings upon any such judgment or (b) such
judgments are not paid, discharged or stayed for a period of 60 days; (vii) any
of the Guarantees of the Guarantors ceases to be in full force and effect or any
of such Guarantees is declared to be null and void and unenforceable or any of
such Guarantees is found to be invalid or any Guarantor, or any Person acting on
behalf of a Guarantor, denies such Guarantor's liability under its Guarantee
(other than by reason of release of a Guarantor in accordance with the terms of
the Indenture); and (viii) certain events of bankruptcy or insolvency with
respect to the Company or any of its Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount at maturity of the then outstanding
Notes may declare the Notes to be due and payable immediately. Upon such
declaration, the principal of (or, if prior to July 31, 2001, the Accreted Value
of), and Liquidated Damages and accrued and unpaid interest on the Notes, if
any, shall be due and payable immediately. Notwithstanding the foregoing, in the
case of an Event of Default arising from certain events of bankruptcy or
insolvency with respect to the Company or any Subsidiary of the Company, the
foregoing amount shall ipso facto become due and payable without further action
or notice. Holders of the Notes may not enforce the Indenture or the Notes
except as provided in the Indenture. Subject to certain limitations, Holders of
a majority in principal amount at maturity of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company or the
Guarantors with the intention of avoiding payment of the premium that the
Company would have had to pay if the Company then had elected to redeem the
Notes pursuant to the optional redemption provisions of the Indenture, an
equivalent premium shall also become and be immediately due and payable to the
extent permitted by law upon the acceleration of the Notes. If an Event of
Default occurs prior to July 31, 2004 by reason of any willful action (or
inaction) taken (or not taken) by or on behalf of the Company or the Guarantors
with the intention of avoiding the prohibition on redemption of the Notes prior
to such date, then the premium specified in the Indenture shall also become
immediately due and payable to the extent permitted by law upon the acceleration
of the Notes.
The Holders of a majority in aggregate principal amount at maturity of the
Notes then outstanding by notice to the Trustee may on behalf of the Holders of
all of the Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of the principal amount (or on or prior to July 31, 2001 the
Accreted Value) of or premium, interest or Liquidated Damages, if any, on the
Notes.
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The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required, upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any Subsidiary (other than the Company and its Subsidiaries), as such, shall
have any liability for any Obligations of the Company or the Guarantors under
the Notes, the Guarantees or the Indenture or for any claim based on, in respect
of, or by reason of, such Obligations or their creation. Each Holder of Notes by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws, and it is the
view of the SEC that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations and the obligations of the Guarantors discharged with respect to the
outstanding Notes ("Legal Defeasance") except for (i) the rights of Holders of
outstanding Notes to receive payments in respect of the principal of and
premium, interest and Liquidated Damages, if any, on the Notes when such
payments are due from the trust referred to below, (ii) the Company's
obligations with respect to the Notes concerning issuing temporary Notes,
registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (iii) the rights, powers, trusts, duties and immunities of the
Trustee and the Company's obligations in connection therewith and (iv) the Legal
Defeasance provisions of the Indenture. In addition, the Company may, at its
option and at any time, elect to have the obligations of the Company released
with respect to certain covenants that are described in the Indenture ("Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the Notes. In the
event Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership and insolvency events) described under "Events of
Default and Remedies" will no longer constitute an Event of Default with respect
to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance,
(i) the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders of the Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of and premium, interest and Liquidated
Damages, if any, on the outstanding Notes on the stated maturity or on the
applicable redemption date, as the case may be, and the Company must specify
whether the Notes are being defeased to maturity or to a particular redemption
date; (ii) in the case of Legal Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that (a) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (b) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred; (iv) no
Default or Event of Default shall have occurred and be continuing on the date of
such deposit (other than a Default or Event of Default resulting from the
borrowing of funds to be applied to such deposit) or insofar as Events of
Default from bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit; (v) such Legal
Defeasance or Covenant Defeasance will not result in a breach or
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violation of, or constitute a default under any material agreement or instrument
(other than the Indenture) to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries is bound; (vi) the
Company shall have delivered to the Trustee an opinion of counsel to the effect
that after the 91st day following the deposit, the trust funds will not be
subject to the effect of any applicable bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally; (vii) the Company shall
have delivered to the Trustee an Officers' Certificate stating that the deposit
was not made by the Company with the intent of preferring the Holders of Notes
or any Guarantee over the other creditors of the Company or any Guarantor with
the intent of defeating, hindering, delaying or defrauding creditors of the
Company or any Guarantor or others; and (viii) the Company shall have delivered
to the Trustee an Officers' Certificate and an opinion of counsel, each stating
that all conditions precedent provided for relating to the Legal Defeasance or
the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes and the Guarantees in accordance
with the Indenture. The Registrar and the Trustee may require a Holder, among
other things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Note selected for redemption. Also, the Company is not required to transfer
or exchange any Note for a period of 15 days before a selection of Notes to be
redeemed. The registered Holder of a Note will be treated as the owner of it for
all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture,
the Notes or the Guarantees may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount at maturity of the Notes
then outstanding (including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, Notes), and any
existing default or compliance with any provision of the Indenture or the Notes
may be waived with the consent of the Holders of a majority in principal amount
at maturity of the then outstanding Notes (including, without limitation,
consents obtained in connection with a purchase of, or tender offer or exchange
offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount at maturity of Notes whose Holders must consent to an
amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Note or alter the provisions with respect to the
redemption of the Notes (other than provisions relating to the covenants
described above under the caption "-- Repurchase at the Option of Holders"),
(iii) reduce the rate of or change the time for payment of interest or
Liquidated Damages on any Note, or change or have the effect of changing the
definition of Accreted Value, (iv) waive a Default or Event of Default in the
payment of principal or Accreted Value of or premium, interest or Liquidated
Damages, if any, on the Notes (except a rescission of acceleration of the Notes
by the Holders of at least a majority in aggregate principal amount at maturity
of the Notes and a waiver of the payment default that resulted from such
acceleration), (v) make any Note payable in money other than that stated in the
Notes, (vi) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive payments
of principal or Accreted Value of or premium, interest or Liquidated Damages, if
any, on the Notes, (vii) waive a redemption payment with respect to any Note
(other than a payment required by one of the covenants described above under the
caption "-- Repurchase at the Option of Holders"), (viii) release any Guarantor
from any of its obligations under its Guarantee or the Indenture otherwise than
in accordance with the terms of the Indenture, or (ix) make any change in the
foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company, the Guarantors and the Trustee may amend or supplement the
Indenture or the Notes to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Company's and the Guarantors'
obligations to Holders of Notes in the case of a merger or consolidation, to
make any change that would provide any additional rights or benefits to the
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Holders of Notes or that does not adversely affect the legal rights under the
Indenture of any such Holder, or to comply with requirements of the SEC in order
to effect or maintain the qualification of the Indenture under the Trust
Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company or any Guarantor, to obtain payment
of claims in certain cases, or to realize on certain property received in
respect of any such claim as security or otherwise. The Trustee will be
permitted to engage in other transactions; however, if it acquires any
conflicting interest it must eliminate such conflict within 90 days, apply to
the SEC for permission to continue or resign.
The Holders of a majority in principal amount at maturity of the then
outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any Holder of Notes, unless such Holder shall have offered to
the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to TeleHub Communications Corporation, 1375 Tri-State
Parkway, Suite 250, Gurnee, Illinois 60031; attention: Richard Harmon, Chief
Financial Officer.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Accreted Value" means as of any date of determination prior to July 31,
2001, an amount per $1,000 principal amount at maturity of any Note that is
equal to the sum of (a) the initial offering price of such Note and (b) the
portion of the excess of the principal amount at maturity of such Note over such
initial offering price which shall have been accreted thereon through such date,
such amount to be so accreted on a daily basis at the rate of 13 7/8% per annum
on the initial offering price of such Note, compounded semi-annually on each
January 31 and July 31 from the Issue Date through the date of determination,
computed on the basis of a 360-day year of twelve 30-day months.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or becomes a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of a sale and leaseback),
other than sales of inventory in the ordinary course of business
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consistent with past practices (provided that the sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company and
its Subsidiaries taken as a whole will be governed by the provisions of the
Indenture described above under the caption "Repurchase at the Option of
Holders -- Change of Control" and/or the provisions described above under the
caption "Certain Covenants -- Limitations on Merger, Consolidation or Sale of
Assets" and not by the provisions of the Asset Sale covenant), and (ii) the
issue or sale by the Company or any of its Subsidiaries of Equity Interests of
any of the Company's Subsidiaries, whether in a single transaction or a series
of related transactions (a) that have a fair market value in excess of $1.0
million or (b) for net proceeds in excess of $1.0 million. Notwithstanding the
foregoing: (i) a transfer of assets by the Company to a Wholly Owned Subsidiary
or by a Wholly Owned Subsidiary to the Company or to another Wholly Owned
Subsidiary, (ii) a Restricted Payment that is permitted by the covenant
described above under the caption "-- Limitations on Restricted Payments" and
(iii) a TNS/TTC Transaction will not be deemed to be an Asset Sale.
"Bank Credit Facility" means (i) one or more revolving credit facilities
entered into by the Company and/or its Subsidiaries, (ii) each instrument
pursuant to which the Obligations under the agreement described in clause (i)
above are amended, deferred, extended, renewed, replaced, refunded or
refinanced, in whole or in part, and (iii) each instrument now or hereafter
evidencing, governing, guaranteeing or securing any Indebtedness under any
agreements described in clause (i) or (ii) above, in each case, as modified,
amended, restated or supplemented from time to time.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
Eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any domestic commercial bank having
capital and surplus in excess of $500 million, and whose short-term debt has a
rating at the time of any such investment of at least "A-1" or the equivalent
thereof by Standard & Poor's or at least "P-1" or the equivalent thereof by
Moody's, (iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (ii) and (iii) above
entered into with any financial institution meeting the qualifications specified
in clause (iii) above, (v) commercial paper having the highest rating obtainable
from Moody's or Standard'& Poor's and in each case maturing within one year
after the date of acquisition and (vi) securities that are registered under the
Securities Act and are sold within forty-five (45) days of any acquisition by
the Company or any of its Subsidiary for cash (to the extent of the cash
received by the Company or such Subsidiary net of all transaction costs and
taxes).
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries, taken as a
whole, to any "person" or "group" (as such terms are used in Section'13(d)(3)
and Section'14(d)(2) of the Exchange Act) other than the Principals, (ii) the
adoption of a plan relating to the liquidation or dissolution of the Company,
(iii) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any person or group (as
defined above), other than the Principals, becomes the "beneficial owner" (as
defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or
indirectly, of more of the voting power of the voting stock of the Company than
at that time is beneficially owned by the Principals, (iv) after the
consummation of any Public Offering, any person or group (as defined above),
other
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than the Principals, becomes the "beneficial owner" of 35% or more of the voting
power of the voting stock of the Company; or (v) the first day on which more
than a majority of the members of the board of directors of the Company are not
Continuing Directors. For purposes of this definition, any transfer of an equity
interest of an entity that was formed for the purpose of acquiring voting stock
of the Company will be deemed to be a transfer of such portion of such voting
stock as corresponds to the portion of the equity of such entity that has been
so transferred. "Change of Control" shall not mean a TNS/TTC Transaction.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person and its Subsidiaries for such period
plus, without duplication, to the extent deducted in computing Consolidated Net
Income, (i) an amount equal to any extraordinary loss plus any net loss realized
in connection with an Asset Sale, (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, (iii) consolidated
interest expense of such Person and its Subsidiaries for such period, whether
paid or accrued (including, without limitation and without duplication,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments (if any) pursuant to Hedging
Obligations) and (iv) depreciation and amortization (including amortization of
goodwill and other intangibles but excluding amortization of prepaid cash
expenses that were paid in a prior period) of such Person and its Subsidiaries
for such period, in each case, on a consolidated basis and determined in
accordance with GAAP. Notwithstanding the foregoing, the provision for taxes on
the income or profits of, and the depreciation and amortization of, a Subsidiary
of the referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in same proportion) that the Net
Income of such Subsidiary was included in calculating the Consolidated Net
Income of such Person and only if a corresponding amount would be permitted at
the date of determination to be dividended, directly or indirectly, to the
Company by such Subsidiary without prior governmental approval (that has not
been obtained), and without direct or indirect restriction pursuant to the terms
of its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such Subsidiary or
its stockholders.
"Consolidated Debt" means, with respect to any Person as of any date of
determination, the sum, without duplication of (i) the total amount of Debt of
such Person and its Subsidiaries, plus (ii) the total amount of Debt of any
other Person, to the extent that such Debt has been guaranteed by the referent
Person or one or more of its Subsidiaries, plus (iii) the aggregate liquidation
value of all preferred stock of Subsidiaries of such Person, in each case,
determined on a consolidated basis in accordance with GAAP.
"Consolidated Leverage Ratio" means, as of any date of determination, the
ratio of (a) the Consolidated Debt of the Company as of such date to (b) two
times the Consolidated Cash Flow of the Company for the two most recent full
fiscal quarters ending immediately prior to such date for which internal
financial statements are available but in no event ending more than 135'days
prior to the date of such determination (the "Measurement Period"), determined
on a pro forma basis after giving effect to all acquisitions or dispositions of
assets made by the Company and its Subsidiaries from the beginning of such
two-quarter period through and including such date of determination (including
any related financing transactions) as if such acquisitions and dispositions had
occurred at the beginning of such two-quarter period. In addition, for purposes
of making the computation referred to above, (i) acquisitions that have been
made by the Company or any of its Subsidiaries, including through mergers or
consolidations and including any related financing transactions, during the
two-quarter Measurement Period or subsequent to such Measurement Period and on
or prior to the date of calculation (the "Calculation Date") shall be deemed to
have occurred on the first day of the two-quarter Measurement Period and
Consolidated Cash Flow for such Measurement Period shall be
calculated without giving effect to clause (iii) of the proviso set forth in the
definition of Consolidated Net Income, (ii) the Consolidated Cash Flow
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded, (iii) if the transaction giving rise to the need to calculate the
Consolidated Leverage Ratio is an incurrence of Indebtedness, the amount of
Indebtedness outstanding at the end of the Measurement Period shall be
calculated after giving effect on a pro forma basis to the incurrence of such
Indebtedness as if such
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Indebtedness had been outstanding as of the end of the Measurement Period and to
the discharge of any other Indebtedness to the extent it was outstanding as of
the end of the Measurement Period and is to be repaid, repurchased, defeased or
otherwise discharged with the proceeds of such new Indebtedness as if such
Indebtedness had been discharged as of the end of the Measurement Period, and
(iv) if the Company or any Subsidiary has repaid, repurchased, defeased or
otherwise discharged any Indebtedness that was outstanding as of the end of the
Measurement Period or if any Indebtedness that was outstanding as of the end of
the Measurement Period is to be repaid, repurchase, defeased or otherwise
discharged on the date of the transaction giving rise to the need to calculate
the Consolidated Leverage Ratio, the aggregate amount of Indebtedness
outstanding as of the end of the Measurement Period shall be calculated on a pro
forma basis as if such discharge had occurred as of the end of the Measurement
Period and the Consolidated Cash Flow shall be calculated as if the Company or
such Subsidiary had not earned the interest income, if any, actually earned
during the period of the most recent two consecutive fiscal quarters for which
financial statements have been made publicly available but in no event ending
more than 135 days prior to the date of such determination in respect of cash or
Cash Equivalents (excluding clause (vi) thereof) used to repay, repurchase,
defease or otherwise discharge such Indebtedness.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that (i) the Net Income (but not loss) that is accounted for by the equity
method of accounting shall be included only to the extent of the amount of
dividends or distributions paid in cash to the referent Person or a Wholly Owned
Subsidiary thereof, (ii) the Net Income of any Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or similar distributions
by that Subsidiary of such Net Income is not at the date of determination
permitted without any prior governmental approval (that has not been obtained)
or, directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary or its stockholders, (iii) the Net
Income of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition shall be excluded, and (iv) the
cumulative effect of a change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common equity holders of such
Person and without duplication its Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (a) all write-ups (other than
write-ups resulting from foreign currency transactions and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of the Indenture in the book value of
any asset owned by such Person or a consolidated Subsidiary of such Person, (b)
all Investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments), and (c)
all unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the board of directors of the Company who (i) was a member of the board of
directors on the date of the Indenture or (ii) was nominated for election to the
board of directors with the approval of at least a majority of the Continuing
Directors who were members of the board of directors at the time of such
nomination or election.
"Debt" means, with respect to any Person, any indebtedness of such Person,
whether or not contingent, in respect of borrowed money or evidenced by bonds,
notes, debentures or similar instruments or letters of credit (or reimbursement
agreements in respect thereof) or bankers' acceptances or representing the
balance deferred and unpaid of the purchase price of any property or
representing Hedging Obligations.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
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"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Notes mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries in existence on the date of the Indenture, until such amounts are
repaid.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantors" means any Subsidiary that executes a Guarantee in accordance
with the provisions of the Indenture, and their respective successors and
assigns.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest and currency rate swap agreements, interest rate
cap agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest or
currency exchange rates (except that if any agreement relating to such
obligation provides for the netting of amounts payable by and to such Person
thereunder or if any such agreement provides for the simultaneous payment of
amounts by and to such Person, then in each such case, the amount of such
obligation shall be the net amount thereof).
"Indebtedness" means, with respect to any Person, (i) any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or bankers' acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance sheet
of such Person prepared in accordance with GAAP, (ii) all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) in which case the amount of such Indebtedness shall
be deemed to be the lesser of (a) the amount of such Indebtedness and (b) the
fair market value of the asset that secures such Indebtedness, (iii)
Disqualified Stock of such Person, (iv) preferred stock of any Subsidiary of
such Person (other than Preferred Stock held by such Person or any of its
Subsidiaries) and (v) to the extent not otherwise included, the guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), directly or indirectly, in any manner (including, without
limitation, letters of credit and reimbursement agreements in respect thereof),
of all or any part of any Indebtedness by such Person of any indebtedness of any
other Person. The amount of any Indebtedness outstanding as of any date shall be
(i) the accreted value thereof, in the case of any Indebtedness that does not
require current payments of interest, and (ii) the principal amount thereof,
together with any interest thereon that is more than 30'days past due, in the
case of any other Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of
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Indebtedness, Equity Interests or other securities, together with all items that
are or would be classified as investments on a balance sheet prepared in
accordance with GAAP; provided that an acquisition of assets, Equity Interests
or other securities by the Company or any of its Subsidiaries for consideration
consisting of common equity securities of the Company shall not be deemed to be
an Investment. If the Company or any Subsidiary of the Company sells or
otherwise disposes of any Equity Interests of any direct or indirect Subsidiary
of the Company such that, after giving effect to any sale or disposition, such
Person is no longer a Subsidiary of the Company, the Company shall be deemed to
have made an Investment on the date of any such sale or disposition equal to the
fair market value of the Equity Interests of such Subsidiary not sold or
disposed of in an amount determined as provided in the covenant described above
under the caption "-- Limitations on Restricted Payments."
"Issue Date" means the date of first issuance of the Notes under the
Indenture.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Liquidated Damages" means all liquidated damages then owing pursuant to
the Registration Rights Agreement.
"Make-Whole Premium" means, with respect to a Note, an amount equal to the
excess of (a) the present value of the remaining interest, Liquidated Damages,
if any, and principal payments due on such Note as if such Note was redeemed on
July 31, 2002, computed using a discount rate equal to the Treasury Rate plus
100 basis points, over (b) the outstanding Accreted Value of such Note as of the
date of determination. "Treasury Rate" is defined as the yield to maturity at
the time of the computation of United States Treasury securities with a constant
maturity (as compiled by and published in the most recent Federal Reserve
Statistical Release H.15(519)), which has become publicly available at least two
Business Days prior to the date fixed for prepayment (of, if such Statistical
Release is no longer published, any publicly available source of similar market
data) most nearly equal to the then remaining average life of the Notes for
which a Make-Whole Premium is being calculated; provided, however, that if the
average life of such Notes is not equal to the constant maturity of the
applicable United States Treasury securities for which a weekly average yield is
given, the Treasury Rate shall be obtained by linear interpolation (calculated
to the nearest one-twelfth of a year) from the weekly average yields of United
States Treasury securities for which such yields are given, except that if the
average life of such Notes is less than one year, the weekly average yield on
actually traded United States Treasury securities adjusted to a constant
maturity of one year shall be used.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person for such period, determined in accordance with GAAP
and before any reduction in respect of preferred stock dividends, excluding,
however, (i) any gain (but not loss), together with any related provision for
taxes on such gain (but not loss), realized in connection with (a) any Asset
Sale (including, without limitation, dispositions pursuant to sale and leaseback
transactions) or (b) the disposition of any securities by such Person or any of
its Subsidiaries or the extinguishment of any Indebtedness of such Person or any
of its Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not
loss), together with any related provision for taxes on such extraordinary or
nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct costs relating to
such Asset Sale (including, without limitation, legal, accounting and investment
banking fees, and sales commissions), any relocation expenses incurred as a
result thereof, any taxes paid or payable by the Company or any of its
Subsidiaries as a result thereof (after taking into account any available tax
credits or deductions and any tax
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sharing arrangements), amounts required to be applied to the repayment of
Indebtedness secured by a Lien on the asset or assets that were the subject of
such Asset Sale and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Investments" means (i) any Investment in the Company or in a
Wholly Owned Subsidiary of the Company; (ii) any Investment in Cash Equivalents;
(iii) any Investment by the Company or any of its Subsidiaries in a Person if,
as a result of such Investment, (a) such Person becomes a Wholly Owned
Subsidiary of the Company or (b) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Wholly Owned Subsidiary of
the Company; (iv) any Investment existing on the date of the Indenture; (v) any
Investment made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with the covenant
described above under the caption "-- Repurchase at the Option of Holders --
Asset Sales," and (vi) other Investments in any Person (other than an Affiliate
that is not Subsidiary or a Person that is controlled by an Affiliate that is
not a Subsidiary) engaged in a line of business that is similar, complementary
or ancillary to the business of the Company on the Issue Date, when taken
together with all other Investments made pursuant to this clause (vi) that are
at the time outstanding, not to exceed $3.0 million.
"Permitted Liens" means (i) Liens securing the Bank Credit Facility; (ii)
Liens in favor of the Company or any of its Subsidiaries; (iii) Liens on
property of a Person existing at the time such Person is merged into or
consolidated with the Company or any of its Subsidiaries, provided that such
Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with the Company or any such Subsidiary; (iv) Liens
on property existing at the time of acquisition thereof by the Company or any of
its Subsidiaries, provided that such Liens were in existence prior to the
contemplation of such acquisition; (v) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (vi)
Liens to secure Indebtedness permitted by clause (iv)(A) (including Capital
Lease Obligations) of the second paragraph of the covenant entitled "Incurrence
of Indebtedness" covering only the assets acquired with such Indebtedness; (vii)
Liens existing on the date of the Indenture excluding Liens on Indebtedness to
be repaid with the proceeds of the Offering; (viii) Liens for taxes, assessments
or governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor; (ix)
Liens incurred in the ordinary course of business of the Company or any of its
Subsidiaries with respect to obligations that do not exceed $2.0 million at any
one time outstanding and that (a) are not incurred in connection with the
borrowing of money or the obtaining of advances or credit (other than trade
credit in the ordinary course of business) and (b) do not in the aggregate
materially detract from the value of the property or materially impair the use
thereof in the operation of business by the Company or any such Subsidiary; (x)
renewals or refundings of any Liens referred to in clauses (iii) through (ix)
above provided that any such renewal or refunding does not extend to any assets
or secure any Indebtedness not securing or secured by the Liens being renewed or
refinanced; (xi) any Lien consisting of a deposit or pledge made in the ordinary
course of business in connection with, or to secure payment of, obligations
under worker's compensation, unemployment insurance or similar legislation; and
(xii) any Lien constituting a renewal, extension or replacement of a Lien
constituting a Permitted Lien, but only if (1) at the time such Lien is granted
and immediately after giving effect thereto, no Default would exist, (2) such
Lien is limited to all or a part of the property or asset that was subject to
the Lien so renewed, extended or replaced and to fixed improvements thereafter
erected on such property or asset, (3) the principal amount of the obligations
secured by such Lien does not exceed the principal amount of the obligation
secured by the Lien so renewed, extended or replaced, (4) the obligations
secured by such Lien bear interest at a rate per annum no exceeding the rate
borne by the obligations secured by the Lien so renewed, extended or replaced
except for any increase that is commercially reasonably at the time of such
increase and (5) the principal amount of the obligations has a final maturity
date of, and has a
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Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of the obligation secured by the Lien so renewed, extended or
replaced.
"Permitted Refinancing Debt" means any Indebtedness of the Company or any
of its Subsidiaries issued in exchange for, or the net proceeds of which are
used to extend, refinance, renew, replace, defease or refund other Indebtedness
of the Company or any such Subsidiary; provided that: (i) the principal amount
(or accreted value, if applicable) of such Permitted Refinancing Debt does not
exceed the principal amount (or accreted value, if applicable) of the
Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded
(plus the amount of reasonable expenses incurred in connection therewith); (ii)
such Permitted Refinancing Debt has a final maturity date no earlier than the
final maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded
is subordinated in right of payment to the Notes, such Permitted Refinancing
Debt has a final maturity date no earlier than the final maturity date of, and
is subordinated in right of payment to, the Notes on terms at least as favorable
to the Holders of Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and (iv) such Indebtedness is incurred only by the Company or the
Subsidiary that is the obligor on the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, limited liability
company, limited liability partnership, joint venture, association, joint-stock
company, trust, unincorporated organization, government or any agency or
political subdivision thereof or any other entity.
"Principals" mean William W. Becker or Donald H. Sledge, their lineal
descendants and any trust, corporation, partnership, association, limited
liability company or other entity in which William W. Becker or Donald H. Sledge
and/or their lineal descendants hold at least 80% of the total, combined
outstanding voting power or similar controlling interest.
"Public Offering" means an underwritten primary public offering of common
stock (other than Disqualified Stock) of the Company registered under the
Securities Act (other than a public offering registered on Form S-8 under the
Securities Act).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Standard & Poor's" means Standard and Poor's, a division of The
McGraw-Hill Companies, and its successors.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of such Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person and/or one or more
Subsidiaries of such Person (or any combination thereof).
"Telecommunications Business" means, when used in reference to any Person,
that such Person is engaged primarily in the business of (i) transmitting, or
providing services relating to the transmission of, voice, video or data through
owned or leased transmission facilities, (ii) creating, developing or marketing
communications related network equipment, software and other devices for use in
a Telecommunications Business, or (iii) evaluating, participating or pursuing
any other activity or opportunity that is related to those identified in (i) or
(ii) above; provided that the determination of what constitutes a
Telecommunications Business shall be made in good faith by the Board of the
Company.
"TNS" means TeleHub Network Services Corporation, an Illinois corporation,
substantially all of the assets of which include an ATM Network.
"TNS/TTC Transaction" means (i) a sale, assignment, transfer, lease,
conveyance or other disposition of all of the capital stock of TNS or all or
substantially all of the assets comprising TNS's ATM Network, and/or
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(ii) a sale, assignment, transfer, lease, conveyance or other disposition of all
of the capital stock of TTC or all or substantially all of the assets comprising
TTC's business; provided that no assets of the Company or any or its
Subsidiaries shall have been or will be transferred or licensed to the
Subsidiary or business being divested by the Company other than on an arm's
length basis and in the ordinary course.
"TTC" means TeleHub Telecommunications Corporation, a Nevada corporation.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person and one or more Wholly Owned Subsidiaries of such Person.
BOOK-ENTRY; DELIVERY AND FORM
The New Notes initially will be issued in the form of one or more global
notes (the "Global Notes"). The Global Notes will be deposited with, or on
behalf of, The Depository Trust Company (the "Depositary") and registered in the
name of Cede & Co., as nominee of the Depositary (such nominee being referred to
herein as the "Global Note Holder"). Notes transferred subsequent to the
consummation of the Offering to institutional "accredited investors" (as defined
in Rule 501(a)(1), (2), (3) or (7)) who are not "qualified institutional buyers"
(as defined in Rule 144A) will be represented by an interest in one or more
permanent global Units in definitive, fully registered form without interest
coupons (each an "Accredited Investor Global Unit" and together with the
Regulation S Global Unit and the Restricted Global Unit, the "Global Units") and
will be deposited with the Trustee as custodian for, and registered in the name
of, Cede & Co., as nominee for the DTC. Transfers of beneficial interests in
Global Notes will be subject to the applicable rules and procedures of the DTC
and its direct or indirect participants which may change from time to time.
Except as set forth below regarding "Certificated Securities," owners of
beneficial interests in the Global Notes will not be entitled to receive
physical delivery of Certificated Securities (as defined below).
The DTC is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "DTC's Participants") and to facilitate the clearance and settlement of
transactions in such securities between Participants through electronic
book-entry changes in accounts of its Participants. The DTC's Participants
include securities brokers and dealers, banks and trust companies, clearing
corporations and certain other organizations. Access to the DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
(collectively, the "Indirect Participants" or the "DTC's Indirect Participants")
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly. Persons who are not Participants may beneficially
own securities held by or on behalf of the DTC only through the DTC's
Participants or the DTC's Indirect Participants.
The Company expects that pursuant to procedures established by the DTC (i)
upon deposit of the Global Notes the DTC will credit the accounts of holders of
New Notes with portions of the principal amount of the Global Notes and (ii)
ownership of the Notes evidenced by the Global Notes will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by the DTC (with respect to the interests of the DTC's Participants), the DTC's
Participants and the DTC's Indirect Participants (with respect to other owners
of beneficial interest in the Global Notes). Prospective purchasers are advised
that the laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer Notes evidenced by the Global Notes will be limited to such extent. For
certain other restrictions on the transferability of the Notes, see "Notice to
Investors."
So long as the Global Note Holder is the registered owner of any Notes, the
Global Security Holder will be considered the sole holder under the Indenture of
any Notes evidenced by the Global Notes. Beneficial
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owners of any Notes evidenced by the Global Notes under the Indenture will not
be considered the owners or holders thereof under the Indenture for any purpose,
including with respect to the giving of any directions, instructions or
approvals to the Trustee thereunder. Neither the Company nor the Trustee will
have any responsibility or liability for any aspect of the records of the DTC or
for maintaining, supervising or reviewing any records of the DTC relating to the
Notes.
Payments in respect of the Accreted Value or principal of, and premium,
interest and Liquidated Damages, if any, on any Notes registered in the name of
the Global Security Holder on the applicable record date will be payable by the
Trustee to or at the direction of the Global Security Holder in its capacity as
the registered holder under the Indenture. Under the terms of the Indenture, the
Company and the Trustee may treat the persons in whose names Notes, including
the Global Notes, are registered as the owners thereof for the purpose of
receiving such payments. Consequently, neither the Company nor the Trustee has
or will have any responsibility or liability for the payment of such amounts to
beneficial owners of Notes. The Company believes, however, that it is currently
the policy of the DTC to immediately credit the accounts of the relevant
Participants with such payments, in amounts proportionate to their respective
holdings of beneficial interests in the relevant security as shown on the
records of the DTC. Payments by the DTC's Participants and the DTC's Indirect
Participants to the beneficial owners of Notes will be governed by standing
instructions and customary practice and will be the responsibility of the DTC's
Participants or the DTC's Indirect Participants.
CERTIFICATED SECURITIES
Subject to certain conditions, any person having a beneficial interest in
the Global Notes may, upon request to the trustee, exchange such beneficial
interest for Notes in registered form without interest coupons ("Certificated
Securities"). Upon any such issuance, the Trustee is required to register such
Certificated Securities in the name of, and cause the same to be delivered to,
such person or persons (or the nominee of any thereof). In addition, if (i) the
Company notifies the Trustee in writing that the DTC is no longer willing or
able to act as a depositary and the Company is unable to locate a qualified
successor within 90 days or (ii) the Company, at its option, notifies the
Trustee in writing that it elects to cause the issuance of Notes in the form of
Certificated Securities under the Indenture, then, upon surrender by the Global
Note Holder of its Global Notes, Certificated Securities will be issued to each
person that the Global Note Holder and the DTC identify as being the beneficial
owner of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the DTC in identifying the beneficial owners of Notes and
the Company and the Trustee may conclusively rely on, and will be protected in
relying on, instructions from the Global Note Holder or the DTC for all
purposes.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture will require that payments in respect of the Notes
represented by the Global Securities (including principal or Accreted Value and
premium, interest and Liquidated Damages, if any) be made by wire transfer of
immediately available funds to the accounts specified by the Global Security
Holder. With respect to Certificated Securities, the Company will make all
payments of principal or Accreted Value and premium, interest and Liquidated
Damages, if any, by wire transfer of immediately available funds to the accounts
specified by the holders thereof or, if no such account is specified, by mailing
a check to each such holder's registered address. The Notes represented by the
Global Securities are expected to trade in the DTC's Same Day Funds Settlement
System, and any permitted secondary market trading activity in such Notes will
therefore be required by the DTC to be settled in immediately available funds.
The Company expects that secondary trading in the Certificated Securities will
also be settled in immediately available funds.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, of which 12,634,450 shares were outstanding on July 15, 1998,
and 100,000,000 shares of preferred stock, of which 4,000,000 shares were
designated as Series A Convertible Preferred Stock (the "Preferred Stock") and
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3,500,000 shares were outstanding on July 15, 1998. As of July 15, 1998, the
Company had issued warrants initially entitling the holders thereof to purchase
5,202,987 shares of Common Stock.
COMMON STOCK
12,634,450 shares of Common Stock were outstanding as of July 15, 1998.
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of shareholders and do not have cumulative voting
rights. Holders of Common Stock are entitled to receive ratably such dividends,
if any, as the Board may declare out of funds legally available therefor. The
Company, however, intends to retain its earnings, if any, to finance the
development and expansion of its business and, therefore, does not anticipate
paying any dividends in the foreseeable future. Upon the liquidation,
dissolution or winding-up of the Company, holders of Common Stock are entitled
to receive ratably the net assets of the Company available after the payment of
all debts, other liabilities and payments to the holders of preferred stock.
Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights.
PREFERRED STOCK
The Company is authorized to issue up to 100,000,000 shares of preferred
stock, with respect to which the Board shall have the authority, without further
action by the shareholders, to issue in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption, liquidation
preferences, sinking fund terms and the number of shares constituting any series
or the designation of such series. The issuance of preferred stock could
adversely affect the voting power of holders of Common Stock and the likelihood
that such holders would receive dividends or payments upon liquidation. The
issuance of preferred stock could be utilized, under certain circumstances, as a
method of discouraging, deferring or preventing a change in control of the
Company.
SERIES A CONVERTIBLE PREFERRED STOCK
There are 3,500,000 shares of Preferred Stock currently issued and
outstanding, which represented approximately 21.7% of the voting power of the
Company's outstanding capital stock. Each share of Preferred Stock may be
converted into one share of Common Stock at any time. The Preferred Stock
outstanding after the completion of an initial public offering will
automatically convert into Common Stock on a one-for-one basis. Holders of
Preferred Stock are entitled to vote on all matters submitted to a vote of the
shareholders. Each share of Preferred Stock has one vote, but does not have
cumulative voting rights. The Preferred Stock has a $5.00 per share liquidation
preference over the Common Stock and any junior class of capital stock.
WARRANTS
The Company authorized and issued warrants to purchase an aggregate of
2,625,000 shares of Common Stock with an exercise price of $7.50 per share in
the Spring 1997 Offering and Fall 1997 Offering, which are exercisable from the
first to the third anniversary of their issuance date. As of July 15, 1998, the
Board had separately authorized and issued warrants to purchase an additional
2,577,987 shares of Common Stock to directors, vendors, placement agents and
service providers ("Vendor Warrants"). These Vendor Warrants have exercise
prices ranging from $5.50 to $12.50, and have terms ranging from three to ten
years. In the Initial Note Offering, the Company issued warrants ("Summer 1998
Warrants") to purchase an aggregate of 2,082,732 shares of Common Stock for a
nominal exercise price, which are exercisable until July 31, 2005. In addition,
the Summer 1998 Warrants are exercisable for an aggregate of 1,084,756
additional shares of Common Stock under certain circumstances.
Warrants do not confer upon the holder any voting rights, preemptive rights
or any other rights as a Company shareholder.
STOCK OPTIONS
As of July 15, 1998, the Company had reserved a total of 4,600,000 shares
of Common Stock for issuance under the Plan and has awarded options to purchase
a total of 2,545,378 shares of Common Stock. The
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exercise price of these options range from $5.00 to $10.00, and have terms of
ten years. The Plan and the option agreements impose limits on transferability
and exercise.
\MANAGEMENT INCENTIVE PLAN
The Board directed the Compensation Committee to develop a Management
Incentive Plan that provides stock option awards to senior Company management.
If the Company achieves specified market valuations based upon the value of its
common stock from June 2, 1998 to June 2, 2000, and assuming the completion of
an initial public offering, eligible participants may receive stock options
exercisable at $14.58 per share (the estimated fair market value of the
Company's Common Stock on June 2, 1998). The aggregate number of stock options
that may be awarded under this management incentive plan increases from
approximately 500,000 shares if the Company's Common Stock value is $20.00 per
share to a maximum of approximately two million shares if the Company's Common
Stock value increases to $60.00 per share.
TRANSFER RESTRICTIONS
The Company's securities are "restricted securities." Accordingly, they may
not be transferred or resold except pursuant to registration or qualification
under federal and state securities law or exemption from registration
thereunder. Holders should consult legal counsel before offering, reselling
pledging or transferring these securities.
REGISTRATION RIGHTS
In connection with the Spring 1997 Offering and Fall 1997 Offering, the
Company agreed to file a registration statement under the Securities Act with
respect to the resale of the shares of Common Stock issuable upon conversion of
the Preferred Stock or upon exercise of the associated warrants (including the
warrant issued to the Placement Agent) within 90 days after the completion of an
initial public offering of the Company's Common Stock and to use all
commercially reasonable efforts to complete that registration.
Shares of Common Stock issuable upon exercise of Vendor Warrants have
"piggy-back" registration rights.
In the Initial Note Offering, the Company agreed to file a registration
statement to register the resale of the common stock underlying the Summer 1998
Warrants, upon demand by one-quarter of the warrant holders given 180 days after
the Company's initial public offering or July 31, 1999, whichever is earlier.
SPECIAL PROVISIONS OF THE COMPANY'S ARTICLES, BYLAWS AND NEVADA CORPORATE LAW
The Company believes that its ultimate success will depend upon adherence
to its long-range business plan. Moreover, implementation of the Company's
long-term business strategies will require experienced and stable management.
Accordingly, the Company's Articles and Bylaws attempt to provide continuity for
the Board and to assure that proposals are consistent with the Company's
long-term interests.
Board of Directors
To promote continuity, stability and experience of the Board, the Company
has a classified Board whereby the directors serve staggered three-year terms.
Shareholders must submit nominations for directorships in advance to the Board.
Shareholders do not have cumulative voting rights in the election of directors
and, as a result, holders of a majority of the Company's voting stock at any
election of directors may elect all of the directors standing for election at
that meeting. Only the Board (not the shareholders) can change the number of
directors or fill vacant directorships. Changing the size of the Board by more
than two directorships per fiscal year requires unanimous Board approval.
Directors may only be removed for cause and upon the affirmative vote of
two-thirds of the Company's holders of capital stock entitled to vote.
The Company believes that these provisions permit directors to develop
expertise and provide continuity on the Board, thereby permitting the Company to
formulate and implement long-term objectives. However, in the event of a change
in control, these provisions would enable incumbent directors to retain their
positions for
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up to two years because at least two annual shareholders' meetings would be
necessary to effectuate a change in the majority of the Board given its current
size. Such potential delay may discourage, delay or prevent a change in control
of the management of the Company.
Stockholder Meetings and Voting
The Articles and Bylaws establish procedures concerning stockholder
meetings, submission of proposals to shareholders, nominations to the Board and
voting. These procedures allow the Board to organize these activities in an
orderly fashion but may restrict shareholders' ability to challenge the Board.
Only the Chairman, Vice Chairman, CEO or COO can call a stockholders
meeting and stockholders may not act by written consent after the Company
becomes subject to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Matters presented for stockholder approval are classified as
either ordinary resolutions or special resolutions; approval of ordinary
resolutions require that affirmative votes exceed negative votes, while approval
of special resolutions requires the affirmative vote of two-thirds (unless a
higher amount is specified in the Articles and Bylaws) of the voting power
entitled to vote. Special resolutions include removal of Directors for cause and
proposals lacking Board recommendation.
The Articles and Bylaws also require that stockholders submit nominations
for the Board and proposals to be submitted for stockholder approval in advance.
The Bylaws also specify the form and timing of shareholder nominations for the
Board. The Articles and Bylaws require that stockholders submit any proposal,
including amendments to the Articles and Bylaws first to the Board for its
recommendation and in accordance with the form and timing specified. If the
Board adopts a resolution expressly recommending the proposal, then the proposal
will be deemed an ordinary resolution, otherwise the proposal will be designated
as a special resolution requiring an affirmative vote of two-thirds of the
Company's shares entitled to vote. The Company believes these procedures
appropriately permit the Board to determine whether proposals are consistent
with the Company's business plan and require a clear shareholder mandate to
overrule the Board's business judgment.
Nevada Corporate Law
Under the Nevada Act, prior board approval is required for combinations
with interested shareholders and for acquisition of a controlling interest.
These provisions may discriminate against existing or prospective shareholders
that own a substantial amount of securities or may prevent change of control of
the Company.
Nevada Act sections 78.411-.444 generally require Board approval of
business combinations between interested shareholders (generally, owners of more
than 10% of the outstanding voting shares) and the Company. Business
combinations include mergers, acquisitions, sales of assets, issuance of more
than 5% of the Company's stock, liquidation or dissolution, recapitalization, or
other activities. During the three years after a person acquired a 10% interest
in the Company thus becoming an interested shareholder, the Board must approve
all business combinations with that interested shareholder; after three years,
either the Board or the majority of the disinterested shareholders must approve
all business combinations.
Nevada Act sections 78.378-.3792 require that any person seeking to acquire
a "controlling interest" in the Company obtain shareholder approval of that
acquisition before obtaining any voting rights in the "control shares." The
Bylaws provide that the Company will become subject to these requirements when
it becomes subject to the reporting requirements of the Exchange Act. In
addition, the Bylaws provide that the acquiring person must deliver a statement
to the Board, which reviews the statement and decides whether to accord voting
rights to the acquiring person. If the Board does not approve the proposed
acquisition, the disinterested shareholders by special resolution, may confer
voting rights on the acquiring person's shares. The Bylaws specify procedures
governing this process. The Nevada Act establishes three different levels of
"controlling interest": 1/5 to 1/3; 1/3 to 1/2; over 1/2 voting power. Thus,
both initial acquisition of substantial ownership and subsequent increases in
ownership will be subject to approval process.
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INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles contain provisions eliminating the personal liability of
Company directors and officers for damages for breach of fiduciary duty. These
provisions, however, do not limit liability for acts or omissions involving
intentional misconduct, fraud, a knowing violation of the law, or illegal
payment of distributions. These provisions offer persons serving as Company
directors or officers protection against monetary damage awards for breach of
fiduciary duty and thereby reduce the ability of Company shareholders to
prosecute actions against a director or officer based on such breach.
Nonetheless, equitable remedies, such as an injunction or rescission, may still
be available. Furthermore, the SEC has taken the position that these limitations
do not affect claims arising under federal securities laws.
Subject to certain limited exceptions, the Articles and the Nevada Act also
provide for mandatory indemnification by the Company of any of the Company's
directors, officers or agents who is involved in any legal proceeding arising
from such person's actions or inactions as a director, officer or agent. Such
indemnification includes reimbursement of expenses incurred by such person in
advance of such legal proceeding.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion identifies certain U.S. federal income tax
considerations relevant to the exchange of Old Notes for New Notes. This
discussion is based upon the Internal Revenue Code ("Code"), as amended,
applicable existing Treasury regulations, judicial authority, current
administrative rulings and pronouncements of the Internal Revenue Service
("IRS") and facts concerning the Company described in this Prospectus. There can
be no assurance that the IRS will concur with this discussion and the Company
will not obtain a ruling from the IRS with respect to the U.S. federal income
tax consequences of investing in the Notes. Future legislative, judicial or
administrative changes or interpretations could alter the tax consequences
identified in this discussion. Any such changes or interpretations might be
retroactive and therefore affect the tax consequences of this investment.
This discussion does not purport to deal with all aspects of U.S. federal
income taxation that may be relevant to particular Holders in light of their
personal investment or tax circumstances (for example, persons subject to the
Code's alternative minimum tax provisions). This discussion pertains only to
U.S. Holders, which means (i) citizens or residents (within the meaning of
Section 7701 (b) of the Code) of the U.S., (ii) corporations, partnerships or
other entities created or organized in or under the laws of the U.S. or any
political subdivision thereof, (iii) estates the income of which is subject to
U.S. federal income taxation regardless of its source, (iv) in general, trusts
subject to the primary supervision of a court within the U.S. and to the control
of a U.S. person as described in Section 7701(a)(30) of the Code, and (v) any
other person whose income or gain is effectively connected with the conduct of a
U.S. trade or business. Also, certain types of investors (such as dealers in
securities, banks, insurance companies, financial institutions, tax-exempt
organizations, and persons holding Notes as part of a hedging or conversion
transaction or straddle or persons deemed to sell Notes under the constructive
sale provisions of the Code) may be subject to special rules. This discussion
assumes that the Notes are held (or would be held if acquired) as capital assets
within the meaning of Section 1221 of the Code. This discussion does not address
tax considerations applicable to subsequent purchasers. The discussion also does
not address any aspect of state, local or foreign law.
PROSPECTIVE HOLDERS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS
ABOUT THE SPECIFIC TAX CONSEQUENCES TO THEM (INCLUDING THE TAX EFFECTS OF ANY
STATE, LOCAL, FOREIGN, OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS)
RESULTING FROM THE EXCHANGE OFFER, OR FROM PURCHASING, HOLDING AND TRANSFERRING
THE NOTES.
EXCHANGE OFFER
Under certain circumstances, modification of debt instruments may
constitute a taxable exchange of the existing debt instrument for a new debt
instrument. Since the terms of the New Notes do not significantly
87
<PAGE> 93
modify the terms of the Old Notes, IRS regulations should treat each New Note as
a continuation of the corresponding Old Note. Consequently, the issuance of the
New Note will be disregard for federal income tax purposes, and a holder
exchanging an Old Note for a New Note (as well as a non-exchanging holder) will
not recognize any gain or loss as a result of the Exchange (or the Exchange
Offer).
STATED INTEREST
Interest earned on a New Note must be recognized as income for federal
income tax purposes in accordance with the holder's method of tax accounting.
Holders using the accrual method of accounting for tax purposes generally must
include interest in ordinary income as such interest accrues, while holders
using a cash basis must include interest income when the holder receives the
cash payments.
ORIGINAL ISSUE DISCOUNT
For debt instruments such as the Notes, the amount by which the debt
instrument's "stated redemption price at maturity" exceeds its "original issue
price" is called the Original Issue Discount ("OID"). The OID generally is
treated as ordinary interest income that accrues at a constant yield to maturity
(i.e., every year the holder recognizes a portion of the OID as income so that
by maturity the holder has recognized the entire amount of the OID). Since the
OID is only received when the debt instrument is redeemed, holders recognize OID
income before receiving the OID. Moreover, the holder must pay federal income
taxes on this imputed OID income as it accrues. Since interest on the Notes
accretes until July 2001, the Notes were issued with OID. Consequently, each
Holder will annually recognize OID income, include any OID income in the
Holder's taxable gross income and pay taxes on the OID income before receiving
any cash from such imputed OID income. The Company annually will furnish the IRS
and record Note holders with information concerning OID accruing during a
calendar year, based upon the Notes' adjusted issue price as though the Holder
were the original Note holder.
The amount of OID that accrues for any semi-annual accrual period equals
the Note's "adjusted issue price" at the start of the accrual period multiplied
by the Note's "yield to maturity". OID that accrues during any accrual period
must be allocated ratably among the days in the accrual period. For each day in
a taxable year in which it holds a Note, a Holder must recognize the daily
allocation of OID as income. The "adjusted issue price" at the start of any
accrual period equals the Note's "original issue price" increased by the accrued
OID for all previous accrual periods and reduced by all cash paid (excluding
"qualified stated interest") in prior accrual periods; the "yield to maturity"
of a Note is the discount rate that, when applied to all payments due under the
Note, produces a present value equal to the Note's original issue price; the
"stated redemption price at maturity" is the sum of the Note's principal amount
plus all payments except for "qualified stated interest" payments; "qualified
stated interest" is stated interest that is unconditionally payable at least
annually at a single fixed rate in either cash or property (excluding other
Company debt instruments).
The tax basis of a Note in the hands of each Holder will be increased by
the amount of any OID that is included in Holder's gross income and will be
reduced by the amount of any cash payments on the Note (other than qualified
stated interest) whether such payments are denominated as principal or interest.
If a bankruptcy proceeding is commenced by or against the Company after the
issuance of the Notes, claims by Holders of Notes may be limited to an amount
equal to the sum of (i) the Notes' initial offering price and (ii) that portion
of the OID that the Holder had amortized as of the bankruptcy filing. The IRS
has taken the position that a holder of an OID obligation must continue to
accrue OID even if there is no prospect of payment of the obligation. However,
the Holder may be able to offset such OID by accrual by claiming a deduction for
such accrual as part of a claim for total or partial worthlessness of the
obligation under sec.166 of the Code.
SALE, EXCHANGE, OR REDEMPTION OF A NOTE
Upon the sale, exchange (other than the Exchange Offer) or redemption of a
Note, a holder will recognize taxable gain or loss equal to the difference
between (i) the amount of cash and the fair market value of property received
(other than amounts received attributable to interest not previously taken into
account,
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<PAGE> 94
which amount will be treated as interest received), and (ii) the holder's
adjusted tax basis in the Note. A holder's adjusted tax basis in a Note
generally will equal the cost of the Note to the holder, increased by the amount
of any OID previously included in income by the holder with respect to the Note
and reduced by any payments previously received by the holder with respect to
the Note, other than qualified stated interest payments, and by any premium
amortization deductions previously claimed by the holder. Provided the Note is a
capital asset in the hands of the holder and has been held for more than one
year, any gain or loss recognized by the holder will generally be a long-term
capital gain or loss.
BACKUP WITHHOLDING
Under the backup withholding rules, a holder of a Note may be subject to a
backup withholding at the rate of 31% on interest paid on the Note or on any
other cash payment with respect to the sale or redemption of the Note, unless
(i) such holder is a corporation or comes under certain other exempt categories
and when required demonstrates this fact or (ii) such holder provides a correct
taxpayer identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules in the Treasury Regulations. Prospective holders of the Notes
(who did not previously furnished a Form W-9 with respect to the Old Notes) will
be required to complete a Form W-9 in order to provide the required information
to the Company. A holder of a Note who does not provide the Company with the
holder's correct taxpayer identification number may be subject to penalties
imposed by the IRS. Any amounts withheld under the backup withholding rules will
be allowed as a refund or a credit against the holder's federal income tax
liability, provided that the required information is furnished to the IRS.
The Company will report to the holders of the Notes and to the IRS the
amount of any "reportable payments" for each calendar year and the amount of tax
withheld, if any, with respect to payments on the Notes.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH HOLDER SHOULD
CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE
EXCHANGE, OWNERSHIP, AND DISPOSITION OF THE NOTES, INCLUDING THE APPLICABILITY
AND EFFECT OF STATE, LOCAL, FOREIGN, AND OTHER TAX LAWS.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes are acquired as a result of market-making activities or other
trading activities. The Company has agreed that it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale for a period of 180 days from the date of the Prospectus,
or such shorter period as will terminate when all Old Notes acquired by
broker-dealers for their own accounts as a result of market-making activities or
other trading activities have been exchanged for New Notes and resold by such
broker-dealers.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own accounts
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market or, in negotiated transactions or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such New
Notes. Any broker-dealer that resells New Notes that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"Underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commissions or concessions
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<PAGE> 95
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
For a period of 180 days from the date of this Prospectus, or such shorter
period as will terminate when all Old Notes acquired by broker-dealers for their
own accounts as a result of market-making activities or other trading activities
have been exchanged for New Notes and resold by such broker-dealers, the Company
will promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to indemnify such
broker-dealers against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for the
Company by Haligman Lottner Rubin & Fishman, P.C., Denver, Colorado. Attorneys
at Haligman Lottner Rubin & Fishman, P.C., beneficially own warrants to purchase
a total of 112,500 shares of Common Stock. In addition, Mr. Michael L. Glaser, a
director and shareholder of Haligman Lottner Rubin & Fishman, P.C., served as
the Company's corporate Secretary from January 1, 1997, to March 3, 1997.
EXPERTS
The consolidated balance sheets as of December 31, 1996 and 1997 and the
consolidated statements of operations, retained earnings, and cash flows for the
period from January 18, 1996 (date of inception) to December 31, 1996, the three
month period ended March 31, 1997 and for the year ended December 31, 1997,
included in this prospectus, have been included herein in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of that firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is not currently subject to the periodic reporting and other
informational requirement of the Exchange Act. The Company has agreed that,
whether or not it is required to do so by the rules and regulations of the SEC,
for so long as any of the Securities remain outstanding, it will furnish to the
holders of the Securities and, if accepted by the SEC, file with the SEC (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the SEC on Forms 10-Q and 10-K if the Company were
required to file such forms, including a "Management's Discussion and Analysis
of Results of Operations and Financial Condition" and, with respect to the
annual information only, a report thereon by the Company's independent auditors
and (ii) all reports that would be required to be filed with the SEC on Form 8-K
if the Company were required to file such reports, in each case, within the time
periods set forth in the rules and regulations of the SEC. In addition, for so
long as any of the Securities remain outstanding, the Company has agreed to make
available to the holders of the Securities, securities analysts, prospective
purchasers of the Securities or beneficial owners of the Securities in
connection with any sale thereof, the information required by Rule 144A(d)(4)
under the Securities Act.
This Prospectus constitutes a part of a registration statement on Form
S-4(together with all amendments thereto, the "Registration Statement") filed by
the Company with the SEC under the Securities Act. This Prospectus, which forms
a part of the Registration Statement, does not contain all the information set
forth in the Registration Statement, certain parts of which have been omitted in
accordance with the rules and regulations of the SEC. Reference is hereby made
to the Registration Statement and related exhibits and schedules filed therewith
for further information with respect to the Company and the New Notes offered
hereby. Statements contained herein concerning the provisions of any document
are not necessarily complete and, in each instance, reference is made to the
copy of such document filed as an exhibit to the Registration Statement or
otherwise filed by the Company with the SEC and each such statement is qualified
in its entirety by such reference. The Registration Statement and the exhibits
and schedules thereto may be inspected and
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<PAGE> 96
copied at the public reference facilities maintained by the SEC: New York
Regional Office, Seven World Trade Center, New York, New York 10048, and Chicago
Regional Office, 500 West Madison Street, Chicago, Illinois 60661. The SEC
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC.
Copies of the Registration Statement may be obtained from the SEC's Internet
address at http://www.sec.gov.
Statements made herein concerning the contents of any contract or other
documents are not necessarily complete. Requests for relevant documents or other
information should be submitted in writing to the Company at the Company's
principal executive offices at 1375 Tri-State Parkway, Suite 250, Gurnee,
Illinois 60031; telephone (800) TELEHUB; Attention: Chief Financial Officer.
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GLOSSARY
Ancillary Services Options available to an enhanced service provider,
which support and complement the provision of
enhanced services. Examples include protocol
conversion and DID with third number billing
inhibited.
Asynchronous Transfer Mode
(ATM) Asynchronous Transfer Mode -- A fast cell-switched
technology based on a fixed-length 53-byte cell.
ATM is capable of handling voice, data, and video
transmissions over the same facility.
Client End user computer on a network (local or Internet).
Competitive Access Provider
(CAP) A new term coined by the FCC to describe a
facilities-based local carrier (such as MFS, MCI,
Metro, etc.) competing directly with the incumbent
carrier. A CAP can also be referred to as a CLEC.
Competitive Local Exchange
Carrier (CLEC) A new term coined by the FCC to describe a
facilities-based local carrier (defined in 1996 FCC
Interconnection Order). Such carrier may also be
referred to as a CAP.
DS-3 Digital service, Level 3. Equipment of 28 T-1
channels, and operating at 44.736 Mbps. Also called
T-3.
End-Office A Central Office to which a telephone subscriber is
connected -- frequently referred to as a Class 5
office -- that actually delivers dial tone to the
subscriber.
Incumbent LEC (ILEC) With respect to an area, the local exchange carrier
that, on February 8, 1996, provided telephone
exchange service in such area and on that date was
deemed to be a member of the exchange carrier
association or is a person or entity that, on or
after February 8, 1996, became a successor or
assign of a member of the foregoing. RBOCs are
considered ILECs.
Independent Telephone
Company (ITC) A telephone company not affiliated with one of the
former RBOCs.
Interexchange Carrier (IXC) These are carriers providing connections between
Local Access and Transport Areas (LATAs) and
serving areas where the calling and called
customers are located in different LATAs.
Internet Protocol (IP) Part of the TCP/IP family of protocols describing
software that tracks the Internet address of nodes,
routes, outgoing message, and recognizes incoming
messages.
InterLATA Telecommunications services that originate in one
LATA and terminate in another.
Leased Lines A carrier or reseller leases T3, T1, or OC-level
trunks for use between switching facilities. The
carrier or reseller is responsible for ensuring
that there is enough capacity to support the
requisite traffic.
LEC Local Exchange Carrier -- any company that is
engaged in the provision of local telephone
exchange service or exchange access.
Network Element A facility or the equipment used in the provision
of a telecommunications service. The term includes
subscriber numbers, databases, signaling systems,
and information sufficient for billing and
collection or used in
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the transmission, routing, or other provision of a
telecommunications service.
Number Portability The technology that will allow a telephone number
to travel with a customer from place to place and,
for 800 numbers, from one long distance carrier to
another.
Operational Support Systems
(OSS) Methods and procedures (generally mechanized) that
directly support the daily operation of the
telecommunications provider's infrastructure, e.g.,
order processing, equipment assignment, etc. A
typical LEC will have hundreds of OSSs.
Public Switch Telephone
Network (PSTN) Usually refers to the worldwide voice telephone
network accessible to all those with telephones and
access privileges (i.e., in the United States, it
was formerly called Bell System Network or the AT&T
long distance network).
Regional Bell Operating
Company (RBOC) Originally seven regional telephone companies
created by the divestiture of AT&T in 1994. Each
company consists of two or more Bell Operating
Companies.
Reseller Company that uses and buys the transmission
facilities and capacity of another carrier. The
price at which it buys services is the wholesale
rate.
Service Control Point (SCP) Also called Signal Control Point. A remote database
within the SS7 network.
Server The main computer on a network, including local
area networks (LANs) and hosts on the Internet. So
called because it "serves" software or information
to the "client" computers on the network.
Service Provider A carrier or other organization that provides dial
tone, access lines, transport, e-mail or Internet
connectivity, typically for a fee.
Signaling System 7 (SS7) An internationally standardized, general purpose
signaling system. It is a dedicated signaling
network that is separate from the regular message
network. The message network still carries the
voice and/or data between the calling and called
parties.
Signal Transfer Points
(STP) Highly reliable packet switches that route
signaling messages between signaling end points on
the network. STPs are the "signaling tandems" of
the signaling network. STPs provide translation and
routing functions for signaling messages received
from the network.
Synchronous Optical Network
(SONET) A family of fiber-optic transmission rates from
51.84 Mbps to 13.22 Gbps. SONET is an optical
interface standard that allows internetworking of
transmission products from multiple vendors.
Switchless Resellers Like aggregators, these companies have no
facilities, but they assume their own identity
through billing and customer care services-earning
their revenues on the difference between wholesale
and retail rates.
Telecommunications The transmission between or among points specified
by the user, of information of the user's choosing
(including voice, data, image, graphics, and video)
without change in the form or content of the
information.
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Telecommunication Carrier Any provider of telecommunications services.
Third-Tier Carriers Also known as switch-based resellers or carriers.
These companies lease networks to interconnect one
or more of their own switches. Revenues vary
dramatically -- from under $1 million to over $100
million annually.
Virtual Access Services
Platform (VASP(TM)) The Company's proprietary software and database
which provide an Advanced Intelligence Network
platform front-end database integrator for billing,
management and control interfacing adjuncts.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statement of Stockholders' Equity (Deficit).... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 101
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
TeleHub Communications Corporation:
We have audited the accompanying consolidated balance sheets of TeleHub
Communications Corporation and its subsidiaries (a development stage company)
(the Company) as of December 31, 1996 and December 31, 1997, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the period from January 18, 1996 (inception) to December 31, 1996, the
three-month period ended March 31, 1997 and for the year ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of TeleHub
Communications Corporation and its subsidiaries (a development stage company) as
of December 31, 1996 and December 31, 1997, and the consolidated results of
their operations and their cash flows for the period from January 18, 1996
(inception) to December 31, 1996, the three-month period ended March 31, 1997
and the year ended December 31, 1997, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has accumulated losses from the development of
its products and services and must obtain substantial additional debt and equity
financings to execute its business plan. These factors raise substantial doubt
regarding the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Coopers & Lybrand L.L.P.
San Francisco, California
January 16, 1998
F-2
<PAGE> 102
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1996 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................ $ 184,936 $ 9,380,320 $ 4,029,636
Restricted cash...................................... -- 1,730,382 1,730,382
Prepayments on leases................................ -- 905,268 905,268
Other assets......................................... 810,212 505,333 578,249
----------- ------------ ------------
Total current assets.......................... 995,148 12,521,303 7,243,535
Property and equipment, net............................ 2,960,159 19,446,322 18,796,878
Prepayments on leases.................................. -- 1,939,054 1,709,249
Other assets........................................... 73,947 351,721 345,058
----------- ------------ ------------
Total assets.................................. $ 4,029,254 $ 34,258,400 $ 28,094,720
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable..................................... $ 791,107 $ 1,995,639 $ 3,239,859
Accrued liabilities.................................. 7,742 1,809,032 2,101,388
Accounts payable, related parties.................... 179,085 -- --
Notes payable, shareholders.......................... 1,273,125 -- --
Accrued interest..................................... 58,296 -- --
Current portion -- capital lease obligations......... 56,347 2,028,898 2,090,295
Current portion -- long-term debt.................... -- 238,624 248,602
Deferred gain on sale/leaseback...................... -- 3,867 24,478
----------- ------------ ------------
Total current liabilities..................... 2,365,702 6,076,060 7,704,622
Payable to equipment vendor............................ 2,273,972 -- --
Deferred revenue....................................... 1,350,000 -- --
Notes payable, shareholders............................ 911,243 -- --
Capital lease obligations.............................. 103,760 9,655,461 9,205,016
Other long-term debt................................... -- 676,316 610,296
Accrued liabilities.................................... -- 449,385 497,675
Deferred gain on sale/leaseback........................ -- 7,733 47,988
----------- ------------ ------------
Total liabilities............................. 7,004,677 16,864,955 18,065,597
----------- ------------ ------------
Commitments and contingencies (Note 6)
Stockholders' equity (deficit):
Convertible preferred stock, $.001 par value;
100,000,000 shares authorized; 4,000,000 shares
designated as Series A; 3,500,000 shares issued and
outstanding at December 31, 1997 and March 31, 1998
(unaudited); liquidation preference $17,500,000.... -- 3,500 3,500
Common stock, $.001 par value; 100,000,000 shares
authorized; 10,000,000, 12,634,450, and 12,634,450
shares issued and outstanding at December 31, 1996
and 1997 and March 31, 1998 (unaudited),
respectively....................................... 10,000 12,634 12,634
Common stock warrants.................................. -- 1,831,234 1,831,234
Additional paid-in capital............................. 991,000 38,613,919 38,613,919
Common stock committed to be issued.................... 512,250 -- --
Shareholder notes receivable........................... (500) -- --
Note receivable -- employee............................ -- (250,000) (250,000)
Deficit accumulated during development stage........... (4,488,173) (22,580,997) (29,974,922)
Deferred compensation.................................. -- (236,845) (207,242)
----------- ------------ ------------
Total stockholders' equity (deficit).......... (2,975,423) 17,393,445 10,029,123
----------- ------------ ------------
Total liabilities and stockholders' equity
(deficit).................................. $ 4,029,254 $ 34,258,400 $ 28,094,720
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 103
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
JANUARY 18, JANUARY 18,
1996 THREE MONTHS ENDED 1996
(INCEPTION) TO YEAR ENDED ------------------------- (INCEPTION) TO
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31, MARCH 31,
1996 1997 1997 1998 1998
-------------- ------------ ----------- ----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Telecommunications
services.................. $ -- $ 1,280 $ -- $ 6,601 $ 7,881
Licenses..................... -- 2,000,000 -- 3,000,000 5,000,000
Consulting services.......... -- 900,000 -- -- 900,000
----------- ------------ ----------- ----------- ------------
-- 2,901,280 -- 3,006,601 5,907,881
----------- ------------ ----------- ----------- ------------
OPERATING EXPENSES:
Operations................... 401,878 9,676,095 390,066 5,925,704 16,003,677
General and administrative... 1,616,265 4,606,776 594,306 1,268,449 7,491,490
Research and development..... 1,606,608 4,245,347 539,042 1,734,994 7,586,949
Sales and marketing.......... 42,568 955,694 157,207 244,680 1,242,942
Depreciation and
amortization.............. 68,556 784,548 54,618 1,025,356 1,878,460
----------- ------------ ----------- ----------- ------------
Total operating
expenses........... 3,735,875 20,268,460 1,735,239 10,199,183 34,203,518
----------- ------------ ----------- ----------- ------------
OPERATING LOSS................. (3,735,875) (17,367,180) (1,735,239) (7,192,582) (28,295,637)
----------- ------------ ----------- ----------- ------------
OTHER INCOME (EXPENSE):
Amortization of debt
discount.................. (85,375) (546,875) (546,875) -- (632,250)
Interest expense............. (66,973) (520,148) (56,246) (299,480) (886,601)
Indemnification expense...... (600,000) -- -- -- (600,000)
Interest income.............. -- 306,490 41,871 97,132 403,622
Other income................. 50 34,889 38 1,005 35,944
----------- ------------ ----------- ----------- ------------
Net loss............. $(4,488,173) $(18,092,824) $(2,296,451) $(7,393,925) $(29,974,922)
=========== ============ =========== =========== ============
Basic and diluted loss per
share........................ $ (0.52) $ (1.70) $ (0.23) $ (0.59)
=========== ============ =========== ===========
Weighted average shares
outstanding used in per share
calculations -- basic and
diluted...................... 8,614,815 10,624,251 10,022,413 12,634,450
=========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 104
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON
STOCK
PREFERRED STOCK COMMON STOCK COMMON ADDITIONAL COMMITTED
------------------ --------------------- STOCK PAID-IN TO BE
SHARES AMOUNT SHARES AMOUNT WARRANTS CAPITAL ISSUED
--------- ------ ----------- ------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 18, 1996 (INCEPTION):
Common stock issued in exchange for
contributed software on January 18,
1996...................................... 1,510,000 $1,510 $ (1,510)
Common stock ($.00066 per share) issued in
exchange for cash and note receivable on
January 18, 1996.......................... 1,500,000 1,500 (500)
Common stock issued in exchange for
contribution of VASP(TM) software on March
7, 1996................................... 2,740,000 2,740 (2,740)
Common stock ($.23529 per share) issued for
cash on March 7, 1996..................... 4,250,000 4,250 995,750
Common stock committed to be issued per
Bridge Loan Agreement dated December 10,
1996...................................... $ 512,250
Net Loss....................................
--------- ------ ----------- ------- ---------- ----------- ---------
BALANCES, DECEMBER 31, 1996.................. 10,000,000 10,000 991,000 512,250
Repayment of shareholder note receivable in
January 1997..............................
Common stock committed to be issued per
Bridge Loan Agreement dated December 10,
1996...................................... 120,000
Common Stock ($5.00 per share) issued per
Bridge Loan Agreement and in exchange for
note receivable on March 17, 1997......... 134,450 134 672,116 (632,250)
Series A convertible preferred stock ($5.00
per share) and warrant to purchase Common
Stock issued on conversion of notes
payable in February and March 1997........ 490,000 $ 490 2,449,510
Series A convertible preferred stock ($5.00
per share) and warrant to purchase Common
Stock issued for cash in February through
April 1997, net of cash issuance costs of
$2,005,921................................ 3,010,000 3,010 $ 72,240 13,041,069
Forgiveness of note receivable in exchange
for consulting services on August 31,
1997......................................
Private placement of Common Stock and
warrant to purchase additional Common
Stock for cash during August and September
1997 ($10.00 per share), net of issuance
cost of $1,848,720........................ 1,000,000 1,000 501,000 8,150,263
Supplemental private placement of Common
Stock for cash between October and
December 1997 ($10.00 per share), net of
issuance costs of $2,198,286.............. 1,490,000 1,490 746,490 12,700,224
Common Stock issued for payment of note
payable in November 1997 ($10.00 per
share) net of issuance costs of $14,010... 10,000 10 5,010 85,980
Issuance of stock options at below fair
value and related deferred compensation... 523,757
Amortization of deferred compensation
related to stock options..................
Issuance of stock warrants in return for
services and related deferred
compensation.............................. 506,494
Amortization of deferred compensation
related to stock warrants.................
Issuance of note receivable to employee in
December 1997.............................
Net loss....................................
--------- ------ ----------- ------- ---------- ----------- ---------
BALANCES, DECEMBER 31, 1997.................. 3,500,000 3,500 12,634,450 12,634 1,831,234 38,613,919 --
Amortization of deferred compensation
related to stock options (unaudited)......
Net Loss (unaudited)........................
--------- ------ ----------- ------- ---------- ----------- ---------
BALANCES, MARCH 31, 1998 (UNAUDITED)......... 3,500,000 $3,500 12,634,450 $12,634 $1,831,234 $38,613,919 $ --
========= ====== =========== ======= ========== =========== =========
<CAPTION>
DEFICIT
ACCUMULATED TOTAL
SHAREHOLDER NOTE DURING STOCKHOLDER'S
NOTES RECEIVABLE DEVELOPMENT DEFERRED EQUITY
RECEIVABLE EMPLOYEE STAGE COMPENSATION (DEFICIT)
----------- ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 18, 1996 (INCEPTION):
Common stock issued in exchange for
contributed software on January 18,
1996...................................... --
Common stock ($.00066 per share) issued in
exchange for cash and note receivable on
January 18, 1996.......................... $ (500) $ 500
Common stock issued in exchange for
contribution of VASP(TM) software on March
7, 1996................................... --
Common stock ($.23529 per share) issued for
cash on March 7, 1996..................... 1,000,000
Common stock committed to be issued per
Bridge Loan Agreement dated December 10,
1996...................................... 512,250
Net Loss.................................... $(4,488,173) (4,488,173)
-------- --------- ------------ --------- ------------
BALANCES, DECEMBER 31, 1996.................. (500) (4,488,173) (2,975,423)
Repayment of shareholder note receivable in
January 1997.............................. 500 500
Common stock committed to be issued per
Bridge Loan Agreement dated December 10,
1996...................................... 120,000
Common Stock ($5.00 per share) issued per
Bridge Loan Agreement and in exchange for
note receivable on March 17, 1997......... (40,000) --
Series A convertible preferred stock ($5.00
per share) and warrant to purchase Common
Stock issued on conversion of notes
payable in February and March 1997........ 2,450,000
Series A convertible preferred stock ($5.00
per share) and warrant to purchase Common
Stock issued for cash in February through
April 1997, net of cash issuance costs of
$2,005,921................................ 13,116,319
Forgiveness of note receivable in exchange
for consulting services on August 31,
1997...................................... 40,000 40,000
Private placement of Common Stock and
warrant to purchase additional Common
Stock for cash during August and September
1997 ($10.00 per share), net of issuance
cost of $1,848,720........................ 8,652,263
Supplemental private placement of Common
Stock for cash between October and
December 1997 ($10.00 per share), net of
issuance costs of $2,198,286.............. 13,448,204
Common Stock issued for payment of note
payable in November 1997 ($10.00 per
share) net of issuance costs of $14,010... 91,000
Issuance of stock options at below fair
value and related deferred compensation... $(523,757) --
Amortization of deferred compensation
related to stock options.................. 286,912 286,912
Issuance of stock warrants in return for
services and related deferred
compensation.............................. (14,450) 492,044
Amortization of deferred compensation
related to stock warrants................. 14,450 14,450
Issuance of note receivable to employee in
December 1997............................. $(250,000) (250,000)
Net loss.................................... (18,092,824) (18,092,824)
-------- --------- ------------ --------- ------------
BALANCES, DECEMBER 31, 1997.................. -- (250,000) (22,580,997) (236,845) 17,393,445
Amortization of deferred compensation
related to stock options (unaudited)...... 29,603 29,603
Net Loss (unaudited)........................ (7,393,925) (7,393,925)
-------- --------- ------------ --------- ------------
BALANCES, MARCH 31, 1998 (UNAUDITED)......... $ -- $(250,000) $(29,974,922) $(207,242) $ 10,029,123
======== ========= ============ ========= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 105
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
JANUARY 18, THREE MONTHS ENDED JANUARY 18,
1996 TO YEAR ENDED MARCH 31, 1996 TO
DECEMBER 31, DECEMBER 31, ------------------------- MARCH 31,
1996 1997 1997 1998 1998
------------ ------------ ----------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operations:
Net Loss........................................ $(4,488,173) $(18,092,824) $(2,296,451) $(7,393,925) $(29,974,922)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization................. 68,556 784,548 54,618 1,025,356 1,878,460
Amortization of deferred compensation......... -- 301,362 -- 29,603 330,965
Amortization of debt discount................. 85,375 546,875 546,875 -- 632,250
Indemnification expense financed and settled
through issuance of stock................... 600,000 -- -- -- 600,000
Expenses financed through notes payable....... 161,243 -- -- -- 161,243
Items settled through issuance of stock and
other equity transactions................... -- 820,801 -- -- 820,801
Other items................................... -- (47,734) -- (96,582) (144,316)
Changes in assets and liabilities
(Increase) decrease in assets:
Prepayments on leases..................... -- (2,844,322) (928,521) 229,805 (2,614,517)
Other assets.............................. (884,159) 27,105 574,524 (66,253) (923,307)
Increase (decrease) in liabilities
Deferred revenue.......................... 1,350,000 (1,350,000) -- -- --
Accounts payable.......................... 791,107 1,204,532 -- 1,244,220 3,239,859
Accrued liabilities....................... 7,742 2,250,675 81,778 340,646 2,599,063
Accounts payable -- related parties....... 179,085 (179,085) (73,518) -- --
Accrued interest.......................... 58,296 (58,296) (19,539) -- --
Deferred gain from sale and lease-back of
equipment............................... -- 11,600 -- 60,866 72,466
----------- ------------ ----------- ----------- ------------
Net cash used in operating activities..... (2,070,928) (16,624,763) (2,060,234) (4,626,264) (23,321,955)
----------- ------------ ----------- ----------- ------------
Cash flows from investing activities:
Payments for property and equipment............. (572,672) (8,897,005) (2,351,487) (1,197,327) (10,667,004)
Proceeds from sale and lease-back of
equipment..................................... -- 998,352 -- 1,000,971 1,999,323
Restricted cash................................. -- (1,730,382) -- -- (1,730,382)
----------- ------------ ----------- ----------- ------------
Net cash used in investing activities..... (572,672) (9,629,035) (2,351,487) (196,356) (10,398,063)
----------- ------------ ----------- ----------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock.......... 1,000,500 22,091,467 -- -- 23,091,967
Proceeds from issuance of preferred stock....... -- 13,116,319 12,540,311 -- 13,116,319
Receipt of payment on shareholder notes
receivable.................................... -- 500 500 -- 500
Proceeds from notes payable to shareholders..... 1,850,000 650,000 650,000 -- 2,500,000
Repayment of shareholder notes.................. -- (1,000,000) (1,000,000) -- (1,000,000)
Payment for note receivable -- related party.... -- (250,000) -- -- (250,000)
Payments on capital lease obligations........... (21,964) (159,309) (23,925) (528,064) (709,337)
Proceeds from loans............................. -- 1,000,205 -- -- 1,000,205
----------- ------------ ----------- ----------- ------------
Net cash provided by financing
activities.............................. 2,828,536 35,449,182 12,166,886 (528,064) 37,749,654
----------- ------------ ----------- ----------- ------------
Net increase in cash and cash equivalents......... 184,936 9,195,384 7,755,165 (5,350,684) 4,029,636
Cash and cash equivalents balance -- beginning of
period.......................................... -- 184,936 184,936 9,380,320 --
----------- ------------ ----------- ----------- ------------
Cash and cash equivalents balance -- end of
period.......................................... $ 184,936 $ 9,380,320 $ 7,940,101 $4,029,636 $ 4,029,636
=========== ============ =========== =========== ============
</TABLE>
See Note 14 for Supplemental Disclosure of Cash Flow Information.
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 106
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
ORGANIZATION:
TeleHub Communications Corporation was formed in January 1996 to develop a
wholesale long distance communications carrier network deploying its proprietary
technology. In September 1996, the name of TeleHub Communications was changed to
TeleHub Network Services ("TNS"). In addition, a new holding company, TeleHub
Communications Corporation (the "Company" or "TeleHub") was formed. TeleHub
initiated an exchange offer in which TNS stockholders received ten thousand
shares of TeleHub common stock for each share of TNS common stock on like terms.
This exchange offer closed on January 1, 1997. All of the shares in TNS were
exchanged in this manner. The Company possesses proprietary software and systems
known as the Virtual Access Services Platform ("VASP(TM)"), which have been
under development to allow the management, billing and control of voice, data
and video content using cell-based efficiencies of asynchronous transfer mode
("ATM"). The Company's wholly-owned subsidiary, TeleHub Technology Corporation
("TTC"), markets and enhances the VASP(TM) technology. The Company has installed
equipment in three switching centers located in Chicago, New York, and Los
Angeles. The Company's activities to date have consisted of product development,
raising capital, acquiring property and equipment, and marketing its products.
The Company is considered a development stage company as of December 31, 1997.
These financial statements reflect the financial position and results of
operations for TeleHub and its consolidated subsidiaries, TNS, TTC and TeleHub
Leasing Corporation ("TLC"). The capital structure of the new holding company,
TeleHub has been reflected on a retroactive basis for all periods presented.
Additionally, the name of the new holding company, TeleHub Communications
Corporation, has been applied on a retroactive basis.
At December 31, 1997, TLC has been incorporated but has had no activity.
TeleHub owns 100% of the common stock of TLC.
The telecommunications industry is highly competitive, as is the specific
wholesale long distance market the Company is entering. The success of the
Company in the wholesale long distance business is dependent upon the Company's
ability to generate significant customer traffic, to manage an efficient long
distance network and related customer service, and future enhancements of
VASP(TM). The Company has not previously managed a long distance network and
there can be no assurance that its long distance services can be sold at a
profit. Furthermore, the VASP(TM) platform is subject to substantial
technological uncertainty and there can be no assurance that the VASP(TM)
platform can be commercially successful.
BASIS OF PRESENTATION:
The financial statements have been prepared assuming the Company will
continue as a going concern. The Company has accumulated losses since its
inception in 1996, related primarily to the development of its software and
construction of its network sites. Management has developed an operations plan
which requires substantial additional debt and equity financings to complete
product development and to successfully launch and market products in
development. The Company's continued existence is dependent upon obtaining
sufficient additional financing and achieving profitable operations. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
F-7
<PAGE> 107
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements of the Company include the accounts
of TeleHub Communications Corporation and its wholly owned subsidiaries. All
significant intercompany balances and transactions have been eliminated.
UNAUDITED INTERIM FINANCIAL INFORMATION:
The Consolidated Financial Statements as of and for the three month period
ended March 31, 1998 are unaudited, but, in the opinion of management, include
all adjustments, consisting only of normal recurring accruals, necessary for a
fair presentation of the results for such period. The results of operations for
the three months ended March 31, 1998 are not necessarily indicative of results
to be expected for the full fiscal year.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION:
Telecommunications Services:
Revenues from telecommunications services provided to customers are
recognized as services are rendered.
Licenses:
Revenues from licenses generally are recognized when the user installs the
product, if there are no significant post-delivery obligations and
collection of the receivables is probable. Revenue from maintenance is
recognized ratably over the product's life cycle, which may exceed one
year. Costs related to insignificant obligations are accrued.
One customer accounted for all of the Company's licensing revenues during
fiscal year 1997 and the three month period ended March 31, 1998.
Consulting Services:
Revenues from consulting services are recorded using the
percentage-of-completion method or on a time and materials basis. Under the
percentage-of-completion method, revenues on contracts are recognized based
on the percentage of costs incurred to date to total estimated project
costs. Earned but unbilled revenues are classified under current assets as
costs in excess of billings. Billings in excess of revenues recognized are
classified under current liabilities as billings in excess of costs.
Deferred revenues generally represent cash received in advance for services
to be performed. The Company periodically evaluates the estimated cost to
complete its contracts. Provisions for losses are recognized on uncompleted
contracts when they become known. Under time and materials contracts,
revenues are recognized as services are performed.
One customer accounted for all of the Company's consulting revenues for
fiscal year 1997. (See Note 6)
F-8
<PAGE> 108
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SOFTWARE DEVELOPMENT COSTS:
Statement of Financial Accounting Standards No. 86, Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed, requires
that software development costs be capitalized once the technological
feasibility of the software product has been established. As of December 31,
1997 all software development costs have been charged to expense in the period
incurred as technological feasibility of the products under development has not
been established.
RESEARCH AND DEVELOPMENT COSTS:
Costs related to research and development activities are expensed when
incurred.
PROPERTY AND EQUIPMENT:
Depreciation and amortization are computed on the straight-line basis over
the estimated useful lives of the assets or the length of the capital lease,
whichever is shorter. Estimated useful lives are as follows:
<TABLE>
<S> <C>
Computer equipment......................... 3 years
Network equipment.......................... 5 years
Office furniture........................... 10 years
</TABLE>
Expenditures incurred for assets under construction are capitalized.
Leasehold improvements are amortized on a straight-line basis over the term of
the lease, or the useful life of the assets; whichever is shorter.
Maintenance and repairs are expensed as incurred. When assets are sold or
retired, the cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is included in operations.
CASH AND CASH EQUIVALENTS:
All cash and cash equivalents are held in checking, money market accounts
or short-term investments with original maturities of 90 days or less, with two
banks. Cash equivalents are recorded at cost, which approximates fair value. As
of December 31, 1997, these balances exceed existing federally insured limits.
INCOME TAXES:
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, which
requires an asset and liability approach to financial accounting and reporting
for income taxes. Accordingly, deferred tax assets and liabilities arise from
the differences between the tax basis of an asset or liability and its reported
amount in the financial statements and net operating loss carryforwards.
Deferred tax amounts are determined by using the tax rates expected to be in
effect when the taxes will actually be paid or refunds received, as provided
under currently enacted tax law. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense or benefit is the tax payable or refundable, respectively,
for the period plus or minus the change in deferred tax assets and liabilities
during the period.
NET LOSS PER SHARE:
The Company computes loss per share pursuant to Statement of Financial
Accounting Standards No. 128, Earnings per Share.
F-9
<PAGE> 109
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
In 1997, the Financial Accounting Standards Board issued Financial
Accounting Standards ("FAS") Number 129, Disclosure of Information About Capital
Structure, FAS Number 130, Reporting Comprehensive Income, and FAS Number 131,
Disclosure About Segments of an Enterprise and Required Information, which are
effective for the year ending December 31, 1998. In 1998, the Accounting
Standards Executive Committee of the AICPA Issued Statement of Position Number
98-1, Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use, and Number 98-5, Reporting on the Costs of Start-up Activities,
which are effective for the year ending December 31, 1999. The Company has not
yet determined the impact of the implementation of these pronouncements on its
financial statements; however, it is not expected to be material.
RECLASSIFICATIONS:
Certain amounts in the financial statements have been reclassified to
conform with the current year's presentation.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Equipment under capital lease:
Network equipment........................... $2,526,636 $12,740,048 $12,854,363
Computer equipment.......................... 25,403 182,072 182,072
Furniture................................... 156,668 151,787 151,787
Network equipment............................. 30,468 1,744,888 1,792,871
Computer and production equipment............. 207,206 2,026,160 2,094,889
Furniture..................................... 12,586 758,078 534,645
Leasehold improvements........................ 69,748 2,648,658 2,920,395
---------- ----------- -----------
Total property and equipment........ 3,028,715 20,251,691 20,531,022
Less accumulated depreciation and
amortization................................ (68,556) (805,369) (1,734,144)
---------- ----------- -----------
Property and equipment, net................... $2,960,159 $19,446,322 $18,796,878
========== =========== ===========
</TABLE>
Included in accumulated depreciation and amortization is $30,345, $312,737,
and $970,612 of accumulated amortization as of December 31, 1996 and 1997, and
March 31, 1998 (unaudited), respectively, related to leased furniture and
equipment.
Depreciation and amortization expense was $68,556, $54,618, $784,548,
$1,025,357 and $1,878,461 for the period from January 18, 1996 (inception) to
December 31, 1996, the three months ended March 31, 1997, the year ended
December 31, 1997, the three months ended March 31, 1998 (unaudited), and the
period from January 18, 1996 (inception) to March 31, 1998 (unaudited),
respectively.
F-10
<PAGE> 110
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ACCRUED LIABILITIES:
The primary components of accrued liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------- -----------
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Employee bonuses................................. -- $ 708,362 $1,054,218
Sales tax on purchased equipment................. -- 694,153 694,153
Other accrued expenses........................... $ 7,742 406,517 353,017
---------- ---------- ----------
Total Accrued Liabilities.............. $ 7,742 $1,809,032 $2,101,388
========== ========== ==========
</TABLE>
5. INCOME TAXES:
The primary components of temporary differences which give rise to deferred
taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997
-------------------- -------------------------
FEDERAL STATE FEDERAL STATE
--------- -------- ----------- -----------
<S> <C> <C> <C> <C>
DEFERRED TAX ASSETS:
Intangible assets.................... -- -- $ 4,800,000 $ 820,000
Net operating loss................... $ 560,000 $ 80,000 2,200,000 400,000
Other, including nondeductible
accruals........................... -- -- 1,000,000 230,000
--------- -------- ----------- -----------
Total deferred tax assets............ 560,000 80,000 8,000,000 1,450,000
Depreciable assets................... -- -- 200,000 30,000
--------- -------- ----------- -----------
Net deferred tax asset............... 560,000 80,000 7,800,000 1,420,000
Valuation allowance.................. (560,000) (80,000) (7,800,000) (1,420,000)
--------- -------- ----------- -----------
Net deferred tax asset............... $ -- $ -- $ -- $ --
========= ======== =========== ===========
</TABLE>
Due to uncertainty of realization, a valuation allowance has been provided
to eliminate the net deferred tax asset at both December 31, 1997 and 1996. The
increase in the valuation allowance was $8,580,000 and $640,000 during the year
ended December 31, 1997 and for the period from January 18, 1996 (inception) to
December 31, 1996, respectively.
At December 31, 1997, the Company had net operating loss (NOL)
carryforwards of approximately $6,500,000 and $6,650,000, for federal and state
income tax purposes, respectively. These carryforwards expire in years through
2012.
Pursuant to the provisions of the Tax Reform Act of 1986, utilization of
the NOL carryforwards may be subject to an annual limitation if the Company
experienced a greater than 50% change in ownership of the Company within a
three-year period.
6. COMMITMENTS AND CONTINGENCIES:
LEASE OBLIGATIONS:
The Company is obligated under the terms of operating leases with various
parties for office space, switch room facilities, office equipment and vehicles.
These contracts may provide for adjustments or escalations
F-11
<PAGE> 111
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
based upon changes in consumer price indices or operating expenses. A summary of
such fixed commitments at December 31, 1997 for the next five succeeding years
and thereafter is as follows:
<TABLE>
<CAPTION>
OPERATING
YEARS CAPITAL LEASES LEASES
- ----- -------------- -----------
<S> <C> <C>
1998....................................................... $2,896,366 $ 9,142,032
1999....................................................... 2,866,258 12,488,890
2000....................................................... 2,825,096 11,461,526
2001....................................................... 2,825,096 6,523,533
2002....................................................... 2,795,748 1,667,973
Thereafter................................................. -- 5,696,205
---------- -----------
Total minimum lease payments............................... 14,208,564 $46,980,159
===========
Less amount representing interest.......................... 2,524,205
----------
Present value of minimum lease payments under capital
leases................................................... 11,684,359
Less current portion....................................... 2,028,898
----------
Noncurrent portion......................................... $9,655,461
==========
</TABLE>
Rent expense under all operating lease agreements was $133,553, $85,808,
$3,397,635, $1,776,449, and $5,307,637 for the period from January 18, 1996
(inception) to December 31, 1996, the three months ended March 31, 1997, the
year ended December 31, 1997, the three months ended March 31, 1998 (unaudited),
and the period from January 18, 1996 (inception) to March 31, 1998 (unaudited),
respectively.
PURCHASE COMMITMENTS:
During 1996 and 1997, the Company entered into equipment financing
arrangements with an equipment vendor to purchase equipment. At December 31,
1996, $2,273,972 was payable to the vendor. In January 1998, the Company
renegotiated the terms of its arrangements into a capital lease. The amount owed
at December 31, 1997 is reflected in the capital lease balances.
EMPLOYMENT AGREEMENTS:
The Company has entered into employment agreements with certain of its
executives. These agreements generally provide for two to four-year initial
terms and thereafter one-year renewal terms until either party provides 30 days
notice of termination prior to the end of a term. If the Company terminates the
employment without cause, or if the employment is terminated upon the occurrence
of a major transaction, as defined, involving the Company, then the executive
shall receive a termination fee equal to 50% to 200% of the executive's annual
salary plus benefits plus a specified bonus. Payments shall only be made upon
execution of a standard release waiving all claims against the Company. The
Company's total potential obligation under these employment agreements was
$1,902,500 at December 31, 1997.
LITIGATION:
On April 15, 1997, Cam-Net Communications Network, Inc. ("Cam-Net") filed
an action against the Company in the United States District Court for the
Northern District of Illinois (Cam-Net Communications Network, Inc. v. TeleHub
Communications Corp. and TeleHub Network Services Corp., Cause No. 97 C 2578).
Cam-Net alleged, among other complaints, the breach of a September 1996
agreement under which TeleHub was to create a new network, billing, and
accounting system for Cam-Net's operations. Cam-Net further alleged that it paid
TeleHub a consulting fee of $1,350,000, but that TeleHub failed to complete the
system. The Company recorded the $1,350,000 it received from Cam-Net as deferred
revenue at December 31, 1996 pending resolution of this complaint. During 1997,
the Company settled its litigation with
F-12
<PAGE> 112
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cam-Net out of court. The terms of the settlement required the Company to return
$450,000 of the consulting fees it had received to Cam-Net. The Company retained
$900,000 in fees related to the consulting services and recognized such fees as
revenue during 1997.
7. RELATED PARTY TRANSACTIONS:
Hartford Holdings, Ltd. ("Hartford"), a substantial shareholder of the
Company, is controlled by the Chairman of the Board of Directors of the Company.
The Vice-chairman, President and Chief Executive Officer of the Company holds a
beneficial interest in the Sledge Family Trust which is a shareholder of the
Company. Hartford and the Sledge Family Trust advanced funds to further the
Company's growth and development in amounts further described in Note 9. The
Company has also indemnified Hartford from certain losses incurred in connection
with the matter discussed in Note 8.
During 1996, the Company paid the President of the Company $110,500 for
consulting services associated with the Cam-Net merger negotiations which were
subsequently abandoned (Note 8). The Company also incurred $169,304 in expenses
for consulting services provided by the Chairman of the Board of Directors. This
amount was payable to Hartford at December 31, 1996 and was settled on March 7,
1997 through the issuance of 33,800 shares of Series A Convertible Preferred
Stock.
In January 1996, Roseville Computer Projects Limited ("Roseville")
contributed certain software in exchange for shares of common stock in TNS which
were later converted into 1,510,000 shares of the Company's common stock. In
March 1996, Roseville assigned all rights, title and interest in the VASP(TM) to
the Company in exchange for additional shares of common stock in TNS which were
later converted into 2,740,000 shares of the Company's common stock. No value
was assigned to the contributed software. During 1996, Roseville allowed the
Company to use certain network databases and libraries for no consideration.
During 1997, Roseville sold certain network databases and libraries to the
Company for $485,000. Under a 1997 consulting agreement with the Company, a
subsidiary of Roseville provided consulting services and maintained those
network databases and libraries for the Company for a fee of $20,000 per month.
The Roseville subsidiary received a total of $325,000 under this consulting
agreement prior to being terminated on January 1, 1998.
During 1996, development efforts on the VASP(TM) were continued by
employees of the Company and programmers and system developers contracted by
Access Point Communications Corp. ("APCC"). APCC is controlled by the Chief
Technology Officer of the Company. APCC billed the Company $974,915 pursuant to
this arrangement during the period from January 18, 1996 (inception) to December
31, 1996. The Company began contracting directly with the programmers and
developers in January 1997. A subsidiary of Roseville received approximately
$300,000 in 1996 as a subcontractor of APCC. During the year ended December 31,
1997 and the period from January 18, 1996 (inception) to December 31, 1996, the
fees totaled $240,000 and $85,000, respectively, and were paid directly to the
Roseville subsidiary. The Company also reimbursed APCC $36,308 for other
operating expenses during 1996. During 1996, the Company also paid APCC
management fees and library maintenance fees of $550,000 of which $14,535
remained outstanding at December 31, 1996.
The Company's Chief Technology Officer has extended, without additional
consideration, personal guarantees to further support lender requirements on one
operating and one capital lease obligation.
The Company loaned the Chief Financial Officer $250,000 due in 1999. The
interest rate applied to this note receivable is 1% over the prime rate. The
executive pledged a warrant exercisable for the purchase of 150,000 shares at
$7.50 per share as collateral. In May 1998, the executive repaid the principal
of the loan and the related accrued interest (unaudited).
F-13
<PAGE> 113
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1997, the Company contracted with International Telecom for
consulting services. International Telecom is owned by the Chairman of the Board
of Directors. Fees to International Telecom during 1997 totaled $175,000.
8. INDEMNIFICATION EXPENSE:
During 1996, the Company agreed to indemnify Hartford (see Note 7) from any
claims and liabilities that Hartford might incur in assisting with the placement
of securities of Cam-Net. Parties unrelated to Hartford had previously advanced
$600,000 to Cam-Net in connection with a private placement of Cam-Net
securities. When the proposed merger was terminated, the securities offering by
Cam-Net was also rescinded, and Hartford was required to repay $600,000 pursuant
to its arrangement with the advancing party. The Company recognized its
obligation to indemnify Hartford as an expense during the period ending December
31, 1996. The Company issued a note payable to Hartford for this $600,000
obligation which is included in notes payable at December 31, 1996. The note was
settled through the issuance of 120,000 shares of Series A Convertible Preferred
Stock and a warrant to purchase 60,000 shares of the Company's common stock on
March 7, 1997 (see Note 9).
9. LONG-TERM DEBT:
NOTES PAYABLE, STOCKHOLDERS:
As of December 31, 1996, the Company had the following notes payable
outstanding to stockholders:
<TABLE>
<S> <C>
Bridge loan payable -- Hartford Holdings, Ltd., commitment
for total advances of $1,000,000 by January 31, 1997,
interest compounded quarterly at 17% per annum, principal
and interest payable from proceeds of any security
offering by the Company, but not later than July 1,
1997...................................................... $ 400,000
Notes payable -- Hartford Holdings, Ltd., interest at 7.5%
per annum, compounded quarterly, interest and principal
payable from proceeds of any security offering by the
Company, but not later than August 30, 1997, convertible
into securities of the Company on same terms as extended
to other investors........................................ 1,300,000
Notes payable -- Hartford Holdings, Ltd., interest at 12%
per annum, compounded quarterly, interest and principal
payable from proceeds of any security offering by the
Company but not later than July 1, 1998................... 411,243
Note payable -- Hartford Holdings, Ltd., interest at 7.5%
per annum, compounded quarterly, interest and principal
payable from proceeds of any security offering by the
Company, but not later than August 1, 1998, convertible
into securities of the Company on same terms as extended
to other investors........................................ 450,000
Note payable -- Officer, interest at 7.5% per annum,
compounded quarterly, interest and principal payable from
proceeds of any security offering by the Company, but not
later than August 1, 1998, convertible into securities of
the Company on same terms as extended to other
investors................................................. 50,000
-----------
Total advances and notes, stockholders...................... 2,611,243
Less: unamortized discount on notes payable................. (426,875)
-----------
2,184,368
Less current portion........................................ (1,273,125)
-----------
Long-term portion........................................... $ 911,243
===========
</TABLE>
F-14
<PAGE> 114
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On March 7, 1997, the Company repaid $1 million of the loans and advances
in cash. The remaining balances were converted into 490,000 shares of the
Company's Series A Convertible Preferred Stock. In conjunction with the
exchange, the Company also issued warrants to purchase 245,000 shares of the
Company's common stock at a price of $7.50 per share.
In December 1996, the Company entered into a Bridge Loan Agreement with
Hartford Holdings. In consideration for the Bridge Loan, the Company agreed to
issue common stock to Hartford equal to 20% of the total amount of notes payable
and advances Hartford provided to the Company through March 1997. Pursuant to
the terms of the agreement, the Company issued 134,450 shares of common stock to
Hartford on March 7, 1997. In conjunction with the issuance of the common stock,
the Company accepted a note receivable from Hartford for $40,000. The estimated
fair value of the common stock issued to Hartford has been recognized by the
Company as a discount on the notes payable to Hartford. Amortization expense on
the discount was $546,875 and $85,375 for the three month period ended March 31,
1997 and for the period from January 18, 1996 (inception) to December 31, 1996,
respectively.
OTHER LONG-TERM DEBT:
The Company has entered into an agreement to finance certain equipment
which is collateralized by the equipment. The loan bears interest at 16.5% per
annum, interest and principal payable monthly. Scheduled repayments of the loan
subsequent to December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
- -----------
<S> <C>
1998............................. $ 238,624
1999............................. 281,116
2000............................. 269,384
2001............................. 125,816
---------
Total............................ 914,940
Less current portion............. (238,624)
---------
Long-term portion................ $ 676,316
=========
</TABLE>
10. LETTERS OF CREDIT:
At December 31, 1997, the Company has $1,682,350 available in standby
letters of credit with a financial institution. The letters of credit expire
from May 13, 1998 to October 27, 1998. The letters of credit are secured by
$1,730,382 of certificates of deposit, reflected as restricted cash in the
accompanying financial statements.
11. COMMON AND PREFERRED STOCK:
PREFERRED STOCK:
The Company has authorized 100,000,000 shares of Preferred Stock, of which
4,000,000 are designated Series A Convertible Preferred Stock ("Series A
Stock"). At December 31, 1997, there were 3,500,000 shares of Series A Stock
outstanding.
Preferred stockholders receive one vote for each common share into which
such preferred shares are convertible. Each share of Series A Stock is
convertible at the option of the stockholder into one share of the Company's
common stock. Shares of the Series A Stock have a liquidation preference of
$5.00 per share. All shares of Series A Stock automatically convert into common
stock in the event that the Company completes
F-15
<PAGE> 115
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
an initial public offering or becomes subject to the reporting requirements of
the Securities Exchange Act of 1934. The Series A Stock is noncumulative.
COMMON STOCK:
The Company has authorized 100,000,000 shares of common stock. At December
31, 1997, there were 12,634,450 shares of common stock outstanding.
COMMON STOCK WARRANTS ISSUED TO NON-EMPLOYEES:
The Company issued warrants to purchase common stock to preferred and
common stockholders, consultants, and equipment lease providers. At December 31,
1997, the following warrants to purchase common stock were outstanding:
<TABLE>
<CAPTION>
NUMBER OF
SHARES AGGREGATE
UNDER EXERCISE
WARRANT PRICE EXERCISE PERIOD
- --------- ----------- ---------------
<C> <C> <S>
1,750,000 $13,125,000 Exercisable at any time from February 20, 1998 to February
20, 2000
301,000 1,655,500 Exercisable at any time from April 30, 1998 to April 30,
2000
150,000 1,500,000 Exercisable at any time from April 30, 1998 to April 30,
2000
25,000 187,500 Exercisable at any time from May 15, 1997 to May 15, 2000
875,000 6,562,500 Exercisable at any time from August 26, 1998 to August 26,
2000
375,000 2,812,500 Exercisable at any time from August 26, 1998 to August 26,
2000
1,750 13,125 Exercisable at any time from December 25, 1998 to December
25, 2000
5,500 55,000 Exercisable at any time from December 15, 1997 until the
later of December 15, 2004 or second anniversary of an
initial public offering
4,667 35,000 Exercisable at any time from June 15, 1997 until the later
of June 15, 2007 or the fifth anniversary of an initial
public offering
55,000 412,500 Exercisable at any time from August 1, 1998 to November 14,
2000
80,070 600,525 Exercisable at any time; no expiration date
</TABLE>
In March 1998 (unaudited), the Company issued a warrant to purchase 10,000
shares of common stock for $10.00 per share. This warrant is exercisable at any
time from March 24, 1999 until March 24, 2000.
The Company estimated the fair value of these warrants and charges such
amounts to expense at the time the services are provided or over the life of the
related financing arrangement. As of December 31, 1997, none of the warrants had
been exercised.
OPTION ISSUED TO NON-EMPLOYEE:
The Company has issued an option to purchase 10,000 shares of the Company's
common stock at an exercise price of $5.00 per share to a consultant in exchange
for services rendered. As of December 31, 1997, this option was exercisable
until August 1, 2007. The Company estimated the fair value of this option and
charged such amount to expense at the time the services were provided. The
Company reserved 10,000 shares of common stock for the exercise of this option
and as of December 31, 1997, the option had not been exercised.
12. EMPLOYEE STOCK OPTION PLAN:
In 1997, the Company created an Employee Stock Option Plan. Under this
plan, the Company may grant options for common stock to its employees,
directors, and consultants either as incentive stock options or nonstatutory
options. The exercise price of each option is determined by the Board of
Directors and an option's maximum term generally is 10 years. Options generally
vest 25% on the day of grant, and 25% annually on
F-16
<PAGE> 116
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
January 1st of each year thereafter. 3,025,000 and 4,600,000 shares of stock
were reserved for the exercise of stock options at December 31, 1997 and March
31, 1998 (unaudited), respectively.
During 1997, the Company granted a warrant to purchase 150,000 shares at
$7.50 per share to an employee. This warrant expires on the fifth anniversary of
an initial public offering.
The following table summarizes activity under the Company's stock option
plan for the period ended December 31, 1997 and the three month period ended
March 31, 1998 (unaudited):
<TABLE>
<CAPTION>
OPTION AND WEIGHTED
NUMBER WARRANT PRICE AGGREGATE AVERAGE
OF SHARES PER SHARE PRICE EXERCISE
--------- ------------- ----------- --------
<S> <C> <C> <C> <C>
Options and warrants:
Granted.................................. 1,626,000 $5.00-7.50 $ 7,460,000 $5.28
Exercised................................ -- -- -- --
Forfeited................................ (10,500) $5.00 (52,500) $5.00
Expired.................................. (1,500) $5.00 (7,500) $5.00
--------- -----------
Options and warrants outstanding at
December 31, 1997........................ 1,614,000 -- $ 7,400,000 $4.58
Granted (unaudited)...................... 1,238,378 $5.00-10.00 11,896,890 $9.61
Exercised (unaudited).................... -- -- -- --
Forfeited (unaudited).................... -- -- -- --
Expired (unaudited)...................... (2,000) $5.00 (10,000) $5.00
--------- -----------
Options and warrants outstanding at March
31, 1998 (unaudited)..................... 2,850,378 $19,286,890 $6.77
========= ===========
</TABLE>
Employee options and warrants to purchase 512,500 and 1,273,878 shares of
common stock were exercisable at December 31, 1997 and March 31, 1998
(unaudited), respectively, and 1,441,000 and 2,054,622 shares remained available
for issuance at December 31, 1997 and March 31, 1998 (unaudited), respectively.
The following table summarizes information with respect to stock options
and warrants outstanding at December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE
WEIGHTED AVERAGE EXERCISE
AVERAGE REMAINING WEIGHTED NUMBER PRICE OF
ON DATE OF GRANT, RANGE OF NUMBER FAIR VALUE CONTRACTUAL AVERAGE EXERCISABLE EXERCISABLE
THE EXERCISE EXERCISE OUTSTANDING OF OPTIONS/ LIFE EXERCISE AT OPTIONS/
PRICE WAS: PRICES AT 12/31/97 WARRANT (YEARS) PRICE 12/31/97 WARRANTS
- ---------------------- ---------- ----------- ----------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Below fair value of
the stock........... $5.00 409,000 $3.38 9.52 $5.00 98,750 $5.00
Below fair value of
the stock........... $7.50 150,000 $3.73 9.64 $7.50 150,000 $7.50
Above fair value of
the stock........... $5.00-5.50 1,055,000 $0.06 9.34 $5.08 263,750 $5.08
--------- -------
1,614,000 512,500
========= =======
</TABLE>
The fair value of each option and warrant grant is estimated on the date of
grant using the minimum value method with the following assumptions used for
grants in 1997: no expected volatility, risk-free interest rate of 5.693%,
expected life of 10 years, and no dividends.
The following information concerning the Company's stock option plan is
provided in accordance with SFAS No. 123, Accounting for Stock-Based
Compensation. The Company accounts for the plan in accordance
F-17
<PAGE> 117
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
with APB No. 25 and related Interpretations. In accordance with APB No. 25, for
the year ended December 31, 1997, the Company incurred compensation expense in
relation to employee stock options and warrants totaling $262,012 and $151,500,
respectively. Had the Company accounted for compensation expense according to
SFAS No. 123, the pro forma net loss would be as follows:
<TABLE>
<S> <C>
Net loss -- as reported..................................... $18,092,824
Net loss -- pro forma....................................... $18,939,602
Net loss per share -- as reported........................... $ 1.70
Net loss per share -- pro forma............................. $ 1.78
</TABLE>
13. 401(K) PLAN:
In June 1997, the Company established a 401(k) Plan (the "Plan"). All
employees of the Company are eligible to participate in the Plan. The Company is
not obligated to make contributions to the Plan and made no such contributions
during fiscal 1997.
14. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
JANUARY 18, 1996 THREE MONTHS ENDED JANUARY 18, 1996
(INCEPTION) TO YEAR ENDED MARCH 31, (INCEPTION) TO
DECEMBER 31, DECEMBER 31, ------------------------ MARCH 31,
1996 1997 1997 1998 1998
---------------- ------------ ---------- ----------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash payment for interest.............. $ 7,761 $ 487,379 $ 86,185 $286,880 $ 782,020
Noncash investing and financing
activities:
Property and equipment financed by
capital lease obligations.......... 182,071 10,018,475 9,731,370 82,974 10,283,520
Property and equipment financed by
equipment vendor................... 2,273,972 -- -- -- 2,273,972
Settlement of accounts payable,
related shareholders, through
issuance of preferred stock........ -- 150,000 150,000 -- 150,000
Settlement of accrued interest
through issuance of preferred
stock.............................. -- 38,757 38,757 -- 38,757
Settlement of notes payable, related
shareholders, through issuance of
preferred stock.................... -- 2,261,243 2,261,243 -- 2,261,243
Common stock issued per Bridge Loan
Agreement.......................... -- 672,250 72,250 -- 672,250
Issuance of stock options to
employees.......................... -- 262,013 -- -- 262,013
Issuance of stock options to
nonemployees....................... -- 24,900 -- -- 24,900
Issuance of stock warrant to
employees.......................... -- 151,500 -- -- 151,500
Issuance of stock warrant to
nonemployees....................... -- 102,994 -- -- 102,994
</TABLE>
F-18
<PAGE> 118
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. NET LOSS PER SHARE:
In accordance with the requirements of Statement of Financial Accounting
Standards No. 128, Earnings Per Share, a reconciliation of the numerator and
denominator of basic and diluted EPS is provided as follows:
<TABLE>
<CAPTION>
JANUARY 18, 1996
(INCEPTION) TO YEAR ENDED THREE MONTHS ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, -----------------------------
1996 1997 1997 1998
---------------- ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Numerator -- Basic and Diluted EPS
Net loss............................ $ (4,488,173) $(18,092,824) $(2,296,451) $(7,393,925)
============ ============ =========== ===========
Denominator -- Basic and Diluted EPS
Weighted average common stock
outstanding...................... 8,614,815 10,624,251 10,022,413 12,634,450
============ ============ =========== ===========
Basic and diluted loss per share...... $ (0.52) $ (1.70) $ (0.23) $ (0.59)
============ ============ =========== ===========
</TABLE>
Options and warrants to purchase an additional 5,191,987 and 6,342,365
shares of common stock were outstanding as of December 31, 1997 and March 31,
1998 (unaudited), respectively, and were excluded from the loss per share
calculation as they have the effect of decreasing loss per share. In addition,
the Company had 3,360,000, 3,500,000, and 3,500,000 shares of convertible
preferred stock outstanding as of March 31, 1997, December 31, 1997 and March
31, 1998 (unaudited). The effect of the conversion of such shares of preferred
stock was also excluded from the loss per share calculation for the three month
period ended March 31, 1998 (unaudited) as the effect would have decreased the
loss per share.
16. SEGMENT INFORMATION:
The Company operates in two business segments: (i) telecommunications
software products; and (ii) telecommunications network services. The following
table presents revenues and other financial information by business segment for
the period from January 18, 1996 (inception) to December 31, 1996 and the year
ended December 31, 1997:
<TABLE>
<CAPTION>
SOFTWARE PRODUCTS NETWORK SERVICES CORPORATE CONSOLIDATED
----------------------- ------------------------ ---------------------- ------------------------
1996 1997 1996 1997 1996 1997 1996 1997
---------- ---------- ---------- ----------- -------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................. -- $2,000,000 -- $ 901,280 -- -- -- $ 2,901,280
Operating loss........... $1,606,607 3,287,453 $2,129,268 11,862,737 -- $ 2,216,990 $3,735,875 17,367,180
Identifiable assets...... -- 2,347,643 4,029,254 21,886,045 -- 10,024,712 4,029,254 34,258,400
Depreciation and
amortization........... -- 181,664 68,556 594,910 -- 7,974 68,556 784,548
Capital expenditures..... -- 1,431,363 3,028,715 16,640,665 -- 149,299 3,028,715 18,221,327
</TABLE>
Identifiable assets are those assets used exclusively in the operations of
each business segment, or which are allocated when used jointly. Corporate
assets are principally cash and cash equivalents and certain property, plant and
equipment.
17. SUBSEQUENT EVENTS (UNAUDITED):
In May 1998, the Company received a $12 million bridge loan from a
financial institution. Interest accrues on the bridge loan at an annual rate of
12% through July 31, 1998, and thereafter, at 10% per annum until maturity in
July 2002. The bridge loan is collateralized by all of the Company's intangible
assets. The financial institution also received a warrant to purchase 240,000
shares of the Company's common stock at an exercise price of $10.00 per share,
exercisable until the later of May 5, 2005 or two years after an initial public
offering.
F-19
<PAGE> 119
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition to the warrant grants discussed in Notes 11 and 12, the
Company, subsequent to March 31, 1998, also granted warrants to employees and
non-employees to purchase 1,015,000 shares of the Company's common stock at
exercise prices ranging from $10.00 to $12.50.
In May 1998, a financial institution committed to purchase 68,587 shares of
the Company's common stock at a price of $14.58 per share.
In February 1998, the Company loaned $112,029 to an executive in exchange
for an unsecured, noninterest bearing promissory note. In May 1998, the
executive repaid this loan.
F-20
<PAGE> 120
---------------------------------------------------
---------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE EXCHANGE OFFER MADE HEREBY. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR SOLICITATION OF AN OFFER TO BUY, IN ANY JURISDICTION WHERE, OR TO ANY PERSON
TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE COMPANY'S AFFAIRS SINCE THE
DATE OF THIS PROSPECTUS.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................ 1
Risk Factors....................... 10
The Exchange Offer................. 19
Use of Proceeds.................... 25
Dividend Policy.................... 26
Capitalization..................... 27
Selected Consolidated Financial
Data............................. 28
Management's Discussion And
Analysis of Financial Condition
And Results of Operations........ 30
Business........................... 34
Management......................... 51
Security Ownership of Certain
Beneficial Owners and
Management....................... 57
Certain Relationships and Related
Transactions..................... 59
Description of The Notes........... 61
Book-Entry; Delivery and Form...... 82
Description of Capital Stock....... 83
Certain Federal Income Tax
Considerations................... 87
Plan of Distribution............... 89
Legal Matters...................... 90
Experts............................ 90
Available Information.............. 90
Glossary........................... 92
Index to Consolidated Financial
Statements....................... F-1
</TABLE>
---------------------
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW
NOTES, WHETHER OR NOT PARTICIPATING IN THIS EXCHANGE OFFER, MAY BE REQUIRED TO
DELIVER A PROSPECTUS.
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
OFFER TO EXCHANGE ALL OUTSTANDING
13.875% SENIOR NOTES
DUE 2005 ("OLD NOTES")
FOR
13.875% SENIOR NOTES
DUE 2005 ("NEW NOTES")
---------------------
TELEHUB
COMMUNICATIONS CORPORATION
---------------------
PROSPECTUS
---------------------
DATED AUGUST , 1998
---------------------------------------------------
---------------------------------------------------
F-21
<PAGE> 121
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Articles of Incorporation ("Articles") contain provisions
eliminating the personal liability of Company directors and officers for damages
for breach of fiduciary duty. These provisions, however, do not limit liability
for acts or omissions involving intentional misconduct, fraud, a knowing
violation of the law, or illegal payment of distributions.
Subject to certain limited exceptions, the Articles and the Nevada Act also
provide for mandatory indemnification by the Company of any of the Company's
directors, officers or agents who is involved in any legal proceeding arising
from such person's actions or inactions as a director, officer or agent. Such
indemnification includes reimbursement of expenses incurred by such person in
advance of such legal proceeding.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) List of Exhibits.
(1) Underwriting Agreement. None.
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession. None.
(3) Corporate Organization.
A. TELEHUB COMMUNICATIONS CORPORATION
(3.A.1) Articles of Incorporation filed with the Nevada Secretary
of State on September 26, 1998.
(3.A.1) Certificate of Designation for Series A Convertible
Preferred Shares filed with the Nevada Secretary of State
on January 31, 1997.
(3.A.2) Bylaws
(4) Instruments defining the rights of security holders
(4.1) Indenture dated July 30, 1998, between Registrant,
Subsidiaries and State Street Bank ("Bank"),
(4.2) Forms of Series A/B Senior Discount Note due 2008 (included
in Exhibit 4.1).
(4.3) Form of Subsidiary Guarantees (included in Exhibit 4.1).
(4.4) Registration Rights Agreement dated July 30, 1998, among the
Registrant, Subsidiaries and BancBoston Securities Inc.
("BSI")
(5) Letter regarding Legality.
* (5.1) Opinion of Haligman Lottner Rubin & Fishman, P.C.
(6) Opinion Regarding Discount on Capital Shares.
(7) Opinion regarding Liquidation Preference. Not Applicable.
(8) Opinion regarding Tax Matters.
* (8.1) Opinion of Haligman Lottner Rubin & Fishman, P.C.
(9) Voting Trust Agreement. None
(10) Material Contracts.
II-1
<PAGE> 122
(10.1) Purchase Agreement dated July 27, 1998, by and among
Registrant, Subsidiaries and BSI.
(10.2) Warrant Agreement dated as of March 11, 1998 between the
Registrant, Subsidiaries and Bank.
(10.3) Warrant Registration Rights Agreement dated July 30, 1998
among Registrant, Subsidiaries and BSI.
(10.4) Sales Agreement, dated as of October 31, 1997, by and
between Newbridge Networks Corporation and the TeleHub
Network Services Corporation.
(10.5) Equipment Lease, dated as of November 11, 1996, by and
between DSC Finance Corporation and the Company.
(10.6) Loan and Security Agreement, dated as of May 5, 1998, by
and between Comdisco, Inc. and the Company.
(10.7) The Company's 1997 Stock Option Plan
(10.8) Form of Incentive Stock Option Certificate
(10.9) Form of Non-statutory Stock Option Certificate
(10.10) Employment Agreement between Registrant and Donald H.
Sledge dated January 2, 1997.
(10.11) Employment Agreement between Registrant and Michael
McLaughlin dated January 2, 1997.
(10.12) Employment Agreement between Registrant and Richard M.
Harmon dated May 4, 1998, as amended.
(10.13) Employment Agreement between TNS and Herb Swinburne, dated
January 1, 1998.
(10.14) Consulting Agreement, dated January 2, 1997, between
Registrant and International Telecom Consulting, Inc.
(10.15) Loan Agreement, dated August 26, 1996 by and between TNS,
Hartford Holdings Ltd ("HHL"), and Donald H. Sledge.
(10.16) Bridge Loan Agreement, dated December 10, 1996, by and
between TNS and HHL.
(10.17) Reimbursement & Assignment of Recovery dated November 30,
1996, among TNS, Hartford Holding Ltd. and Dovedale
Investments Ltd.
(10.18) Promissory Note dated February 13, 1998, for C$157,500 by
Mr. Swinburne to Registrant.
(10.19) Secured Promissory Note, dated November 1997 by Richard M.
Harmon to Registrant for $250,000, due November 1999.
(11) Statement regarding Computation of Per Share Earnings. None.
(12) Statement regarding Computation of Ratios. No Exhibit Required.
(13) Annual Report to Security Holders. None.
(14) Material Foreign Patents. None.
(15) Letter regarding Unaudited Interim Financial Information. Not
Applicable
(16) Letter regarding Change in Certifying Accountant. None.
(17) Letter regarding Director Resignation. No Exhibit Required.
II-2
<PAGE> 123
(18) Letter regarding Change in Accounting Principles. No Exhibit
Required.
(19) Report furnished to Security Holders. No Exhibit Required.
(20) Other Documents or Statements to Security Holders. No Exhibit
Required.
(21) Subsidiaries of Registrant.
(22) Published Report regarding Matters Submitted to Vote of Security
Holders. No Exhibit Required.
(23) Consents.
(23.1) Consent of PricewaterhouseCoopers LLP., independent
accountants.
* (23.2) Consent of Opinion of Haligman Lottner Rubin & Fishman,
P.C. (included in Exhibits 5.1 & 8.1)
(24) Power of Attorney. Included with Signatures.
(25) Statement of Eligibility of Trustee.
* (25.1) Form T-1 Statement of Eligibility and Qualification under
the Trust Indenture Act of 1939 of State Street Bank.
(26) Invitation for Competitive Bids. Not Applicable.
(27) Financial Data Schedule.
(28) Information from Reports Furnished to State Insurance Regulatory
Authorities. None.
(99) Other Exhibits.
* (99.1) Form of Letter of Transmittal with respect to Exchange
Offer.
* (99.1) Form of Notice of Guaranteed Delivery.
* (99.1) Form of Exchange Agent Agreement.
- ---------------
* To be filed by amendment
(b) Financial Statement Schedules. Schedules not listed above were omitted
because the information to be set forth therein is not applicable or is
shown in the financial statements or accompanying notes.
(c) Report, Appraisal or Opinion from independent third party. None.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of section 310 of the Trust Indenture Act ("Act") in accordance with the
rules and regulations prescribed by the SEC under section 305(b)(2) of the Act.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 124
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
POWER OF ATTORNEY
The Registrant and each person whose signature to this Registration
Statement on Form S-4 appears below hereby authorizes Richard M. Harmon, with
full power of substitution, to file one or more amendments, which amendments may
make such changes he deems appropriate, and the Registrant and each such person
hereby appoints Richard M. Harmon as attorney-in-fact with full power to act
alone, to execute, in the name and on behalf of the Registrant and each such
person, individually and in such capacity stated below, and any such amendments.
SIGNATURES
Pursuant to the requirements of the Securities Act, Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Walnut Creek, California.
TELEHUB COMMUNICATIONS CORPORATION
By: /s/ RICHARD M. HARMON
---------------------------------------
Richard M. Harmon, Chief Financial
Officer
August 13, 1998
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ WILLIAM W. BECKER Chairman of the Board of Directors
- ------------------------------------------------
William W. Becker
/s/ DONALD H. SLEDGE Vice-Chairman, Chief Executive Officer and
- ------------------------------------------------ Director
Donald H. Sledge
/s/ RICHARD M. HARMON Chief Financial Officer, Secretary and
- ------------------------------------------------ Director
Richard M. Harmon
/s/ JOHN LAWSON Principal Accounting Officer
- ------------------------------------------------
John Lawson
</TABLE>
II-4
<PAGE> 125
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MICHAEL G. MCLAUGHLIN Director
- ------------------------------------------------
Michael G. McLaughlin
/s/ BARRY C. LESCHER Director
- ------------------------------------------------
Barry C. Lescher
Director
- ------------------------------------------------
John F. Slevin
Director
- ------------------------------------------------
Oz Pedde
Director
- ------------------------------------------------
John R. Snedegar
/s/ MARTIN R. WALSH Director
- ------------------------------------------------
Martin R. Walsh
</TABLE>
II-5
<PAGE> 126
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
---------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
TELEHUB COMMUNICATIONS CORPORATION
(COMMISSION FILE NO. 33- )
---------------------
EXHIBITS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 127
TELEHUB COMMUNICATIONS CORPORATION
(COMMISSION FILE NO. 33- )
EXHIBIT INDEX TO EXHIBITS PAGE
(1) Underwriting Agreement. None.
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession. None.
(3) Corporate Organization.
A. TELEHUB COMMUNICATIONS CORPORATION
(3.A.1) Articles of Incorporation filed with the Nevada Secretary
of State on September 26, 1998.
(3.A.1) Certificate of Designation for Series A Convertible
Preferred Shares filed with the Nevada Secretary of State
on January 31, 1997.
(3.A.2) Bylaws
(4) Instruments defining the rights of security holders
(4.1) Indenture dated July 30, 1998, among Registrant, Subsidiaries
and State Street Bank ("Bank"),
(4.2) Forms of Series A/B Senior Discount Note due 2008 (included
in Exhibit 4.1).
(4.3) Form of Subsidiary Guarantees (included in Exhibit 4.1).
(4.4) Registration Rights Agreement dated July 30, 1998, among the
Registrant, Subsidiaries and BancBoston Securities Inc.
("BSI")
(5) Letter regarding Legality.
* (5.1) Opinion of Haligman Lottner Rubin & Fishman, P.C.
(6) Opinion Regarding Discount on Capital Shares.
(7) Opinion regarding Liquidation Preference. Not Applicable.
(8) Opinion regarding Tax Matters.
* (8.1) Opinion of Haligman Lottner Rubin & Fishman, P.C.
(9) Voting Trust Agreement. None
(10) Material Contracts.
(10.1) Purchase Agreement dated July 27, 1998, by and among
Registrant, Subsidiaries and BSI.
(10.2) Warrant Agreement dated as of March 11, 1998 between the
Registrant, Subsidiaries and Bank.
(10.3) Warrant Registration Rights Agreement dated July 30, 1998
among Registrant, Subsidiaries and BSI.
(10.4) Sales Agreement, dated as of October 31, 1997, by and
between Newbridge Networks Corporation and the TeleHub
Network Services Corporation.
(10.5) Equipment Lease, dated as of November 11, 1996, by and
between DSC Finance Corporation and the Company.
<PAGE> 128
(10.6) Loan and Security Agreement, dated as of May 5, 1998, by
and between Comdisco, Inc. and the Company.
(10.7) The Company's 1997 Stock Option Plan
(10.8) Form of Incentive Stock Option Certificate
(10.9) Form of Non-statutory Stock Option Certificate
(10.10) Employment Agreement between Registrant and Donald H.
Sledge dated January 2, 1997.
(10.11) Employment Agreement between Registrant and Michael
McLaughlin dated January 2, 1997.
(10.12) Employment Agreement between Registrant and Richard M.
Harmon dated May 4, 1998, as amended.
(10.13) Employment Agreement between TNS and Herb Swinburne, dated
January 1, 1998.
(10.14) Consulting Agreement, dated January 2, 1997, between
Registrant and International Telecom Consulting, Inc.
(10.15) Loan Agreement, dated August 26, 1996 by and between TNS,
Hartford Holdings Ltd ("HHL"), and Donald H. Sledge.
(10.16) Bridge Loan Agreement, dated December 10, 1996, by and
between TNS and HHL.
(10.17) Reimbursement & Assignment of Recovery dated November 30,
1996, among TNS, Hartford Holding Ltd. and Dovedale
Investments Ltd.
(10.18) Secured Promissory Note, dated November 1997 by Richard M.
Harmon to Registrant for $250,000, due November 1999.
(10.19) Promissory Note dated February 13, 1998, for C$157,500 by
Mr. Swinburne to Registrant.
(11) Statement regarding Computation of Per Share Earnings. None.
(12) Statement regarding Computation of Ratios. No Exhibit Required.
(13) Annual Report to Security Holders. None.
(14) Material Foreign Patents. None.
(15) Letter regarding Unaudited Interim Financial Information. Not
Applicable
(16) Letter regarding Change in Certifying Accountant. None.
(17) Letter regarding Director Resignation. No Exhibit Required.
(18) Letter regarding Change in Accounting Principles. No Exhibit
Required.
(19) Report furnished to Security Holders. No Exhibit Required.
(20) Other Documents or Statements to Security Holders. No Exhibit
Required.
(21) Subsidiaries of Registrant.
(22) Published Report regarding Matters Submitted to Vote of Security
Holders. No Exhibit Required.
(23) Consents.
* (23.1) Consent of PricewaterhouseCoopers, independent accountants.
<PAGE> 129
* (23.2) Consent of Opinion of Haligman Lottner Rubin & Fishman,
P.C. (included in Exhibits 5.1 & 8.1)
(24) Power of Attorney. Included with Signatures.
(25) Statement of Eligibility of Trustee.
* (25.1) Banks Form T-1 Statement of Eligibility and Qualification
under the Trust Indenture Act.
(26) Invitation for Competitive Bids. Not Applicable.
(27) Financial Data Schedule.
(28) Information from Reports Furnished to State Insurance Regulatory
Authorities. None.
(99) Other Exhibits.
* (99.1) Form of Letter of Transmittal with respect to Exchange
Offer.
* (99.1) Form of Notice of Guaranteed Delivery.
* (99.1) Form of Exchange Agent Agreement.
- ---------------
* To be filed by amendment
<PAGE> 1
EXHIBIT-3.A.1
ARTICLES OF INCORPORATION OF
TELEHUB COMMUNICATIONS CORPORATION
(Pursuant to General Corporation Law of Nevada, Title 7, Chapter 78)
STATE OF NEVADA
Secretary of State
ARTICLE 1: NAME AND BUSINESS
The name of the Corporation is TeleHub Communications Corporation. The
Corporation may engage in any lawful act, activity or business for which
corporations may be organized under Nevada law.
ARTICLE 2: RESIDENT AGENT AND REGISTERED OFFICE
2.1: The Corporation's resident agent is The Corporation Trust Company of
Nevada located at One East First Street, Reno, Nevada 89501.
2.2: The address of the Corporation's registered office is One East First
Street, Reno, Nevada 89501.
2.3: The Corporation may also maintain offices for the transaction of any
business at such other places within or without the State of Nevada as it may
from time to time determine. Corporate business of every kind and nature may be
conducted and meetings of directors and shareholders may be held outside the
State of Nevada with the same effect as if in the State of Nevada.
2.4: The books and records of this Corporation may be kept (subject to any
statutory requirements) outside the State of Nevada at the locations designated
by the Board of Directors or the Corporation's Bylaws.
ARTICLE 3: BOARD OF DIRECTORS
3.1: The business and affairs of the Corporation shall be under the control
and management of a Board of Directors, except as otherwise provided by law. The
Board of Directors shall exercise all corporate powers of the Corporation except
as otherwise provided herein or by law.
3.2: In furtherance and not in limitation of the powers conferred by law,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Corporation's Bylaws without further action by shareholders.
3.3: There shall be at least one and no more than nine Directors of the
Corporation. The directorships shall be divided into three classes as nearly
equal in size as is practicable, hereby designated Classes A, B, and C. The
initial terms of office for Directors in each class will expire as follows:
Class A: at the first Annual General Meeting of Shareholders ("AGM");
Class B: at the second AGM;
Class C: at the third AGM;
<PAGE> 2
Directors elected at an AGM to succeed expiring directorships shall hold office
until the third AGM following the election and that Director's successor has
been duly elected and qualified.
3.4: The number of directorships shall only be changed by official action
of the Board of Directors, and any increase or decrease by more than two
directorships during a fiscal quarter shall require unanimous approval. Any
increase or decrease in directorships shall be so apportioned among the classes
as to make all classes as nearly equal in number as practicable, provided that
any decrease in the number of directorships shall not shorten the term of any
incumbent Director.
3.5: Vacant directorships and newly created directorships may be filled
only by a majority vote of the remaining members of the Board of Directors,
even if less than a quorum, at any meeting of the Board of Directors. A person
chosen to fill a vacant or newly-created directorship shall hold office until
the expiration of the term for that directorship class and until the Director's
successor has been duly elected and qualified.
3.6: The initial Board of Directors shall consist of one Director, and the
following person shall constitute the Corporation's initial Board of Directors:
Name Class Address
---- ----- -------
Donald H. Sledge A 27 Cherry Hill Court
Alamo, California 94507
ARTICLE 4: LIMITATION ON LIABILITY OF DIRECTORS AND OFFICERS
4.1: To the fullest extent permitted by law, a director or officer of the
Corporation shall not be personally liable to this Corporation or its
shareholders for damages for breach of fiduciary duty as a director or officer.
4.2: Any repeal or modification of this Article by the Corporation's
shareholders shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a Corporation's director or officer for
acts or omissions prior to such repeal or modification.
ARTICLE 5: INDEMNITY
5.1: As used in this Article, the term "Agent" includes officers,
directors, employees, agents, and persons serving at the request of the
Corporation, in any managerial, fiduciary or agency role for another entity.
5.2: As used in this Article, the term "Action" includes threatened,
pending, or completed actions, suits, or proceedings, whether administrative,
civil, criminal or investigative.
5.3: As used in this Article, the term "Expenses" includes liabilities,
expenses, court costs, attorneys' fees, judgments, fines, penalties, and amounts
paid in settlement.
5.4: To the fullest extent permitted by law and by this Article, the
Corporation shall indemnify any person against all Expense incurred in any
Action by reason of the fact that person was an Agent of the Corporation.
5.5: The Expenses of Agents incurred in defending an Action must be paid by
the Corporation as such Expenses are incurred and in advance of the final
disposition of the Action.
2
<PAGE> 3
Prior to advancing any Expenses, the Corporation must receive a notarized
undertaking by the Agent promising to repay all amounts advanced if a court
ultimately determines that the Agent is not entitled to indemnification by the
Company.
5.6: The indemnification provided in this Article shall not be exclusive
of any other right which such Agents may have or hereafter acquire, and,
without limiting the generality of such statement, they shall be entitled to
their respective rights of indemnification under any bylaw, agreement, vote of
shareholders, provision of law, or otherwise, as well as their rights under
this Article.
5.7: Without limiting the application of the foregoing, the Board of
Directors may adopt bylaws from time to time with respect to indemnification,
to provide at all times the fullest indemnification permitted by the laws of
the State of Nevada, and may cause the Corporation to purchase and maintain
insurance on behalf of any Agent against any Expenses asserted against such
Agent and incurred in any such capacity or arising out of such status, whether
or not the Corporation would have the power to indemnify such person
5.8: The indemnification provided in this Article shall continue as to a
person who has ceased to be an Agent and shall inure to the benefit of the
Agent's estate, heirs, personal representatives, executors and administrators.
5.9: any repeal or modification of this Article by the Corporation's
shareholders shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a Corporation's director or officer for
acts or omissions prior to such repeal or modification.
ARTICLE 6: SHAREHOLDERS
6.1: Meetings of the Corporation's shareholders may be held within or
without the State of Nevada, as the Corporation's bylaws may provide.
6.2: After the Corporation becomes subject to the requirements of Sections
12 or 15(d) of the United States Securities Exchange Act of 1934, the
shareholders may not act by written consent without a meeting, but instead, may
act only at a duly called annual or special meeting.
6.3: Only the Corporation's Chairman or Vice-Chairman of the Board of
Directors or the Chief Executive Officer may call an annual or special meeting
of shareholders.
6.4: Cumulative voting shall not be permitted in the election of directors.
6.5: Shareholders may only remove a director from office for cause.
6.6: The removal of a director from office requires the vote of
shareholders representing at least two-thirds of the voting power of the issued
and outstanding capital stock entitled to voting power.
6.7: Any proposal to be submitted for approval by the shareholders must
first be presented to the Board of Directors for their recommendation. Adoption
of any proposal not expressly recommended by an official Resolution of the
Board of Directors requires the affirmative vote of shareholders representing
at least of 75% of the voting power of the issued and outstanding capital stock
entitled to voting power.
3
<PAGE> 4
ARTICLE; CAPITAL STOCK
7.1: This Corporation is authorized to issue two classes of capital stock,
to be designated, respectively, "Common Shares" and "Preferred Shares". The
total amount of capital stock ("Shares") this Corporation may issue is Two
Hundred Million (200,000,000) Shares.
7.2: The Corporation may issue Shares from time to time without any action
by the shareholders. The Shares may be issued for such consideration as may be
fixed from time to time by the Board of Directors. The Board of Directors may
authorize Shares of one class to be issued as a share dividend in respect
of Shares of another class or series.
7.3: One Hundred Million (100,000,000) Shares shall be designated "Common
Shares" with a par value of $0.001 per Common Share.
7.4: One Hundred Million (100,000,000) Shares shall be designated
"Preferred Shares" with a par value of $0.001 per Preferred Share. The
Corporation may issue Preferred Shares in one or more series, at such price and
in such number as authorized by the Board of Directors. The Board of Directors
shall by written resolution, prescribe the number, voting powers, designations,
preferences, limitations, restrictions and relative rights of each series of
Preferred Shares.
7.5: Shareholders of the Corporation do not have any preemptive rights to
purchase, subscribe for, or otherwise acquire any Shares or other Corporation
securities.
ARTICLE 8: AMENDMENT OF ARTICLES
8.1: The Corporation reserves the right to amend, add, alter, change or
repeal any provision of these Articles of Incorporation or its Bylaws, in the
manner now hereafter prescribed by Nevada statute, by these Articles or the
Bylaws, and all rights conferred upon the shareholders are granted subject to
this reservation.
8.2: Any amendment, addition, alteration, change or repeal ("Amendment") to
these Articles must first be presented to the Board of Directors for their
recommendation. Adoption of any Amendment not expressly recommended by an
official Resolution of the Board of Directors requires the affirmative vote of
shareholders representing at least 75% of the voting power of the issued and
outstanding capital stock entitled to voting power.
SIGNATURES OF INCORPORATORS
/s/ PATRICK E. DONOVAN 1675 Broadway, Ste.1200
- ------------------------------ ------------------------------
Patrick E. Donovan Denver, CO 80202
This instrument was acknowledged before me on September 25, 1996, by PATRICK E.
DONOVAN and ______________ as incorporators of TELEHUB COMMUNICATIONS
CORPORATION.
[SEAL] /s/BARBARA A SENA
------------------------------
Notary Public
My Commission Expires 10/9/96
4
<PAGE> 1
EXHIBIT 3.A.2
TELEHUB COMMUNICATIONS CORPORATION
CERTIFICATE OF VOTING POWERS, DESIGNATIONS, PREFERENCES AND
RIGHTS OF PREFERRED SHARES
by Resolution of the Board of Directors
We, DONALD H. SLEDGE and MICHAEL L. GLASER of TELEHUB COMMUNICATIONS
CORPORATION, a corporation organized and existing under the Business
Corporation Law of the State of Nevada, in accordance with the provisions of
Section 78.195 of the Nevada Revised Statutes thereof, DO HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors by the
Articles of Incorporation of said Corporation, said Board of Directors, by
written consent in lieu of a meeting, adopted resolutions providing for the
issuance of a series of FOUR MILLION (4,000,000) shares of Series A Convertible
Preferred Shares, which resolutions are as follows:
RESOLVED, that 4 million of the Preferred Shares authorized to be issued by
this Corporation are hereby established and designated Series A Convertible
Preferred Shares;
RESOLVED, that each share in such series shall have the following rights,
preferences and limitations:
1. Voting Power: Holders of Series A Convertible Preferred Shares
shall be entitled to notice of, attend and vote at meetings of
the Corporation's shareholders. Each Series A Convertible
Preferred Share has the same voting power as a common share.
2. Liquidation Preference: in the event of liquidation, holders of
Series A Convertible Preferred Shares shall be entitled to
receive $5.00 per share in preference and priority to any
payment to common share holders.
3. Conversion: At the holder's option, each Series A Convertible
Preferred Share may be converted into one common share. At the
time the Corporation completes an initial public offering or
becomes subject to the reporting requirements of the Securities
Exchange Act of 1934, all outstanding Series A Convertible
Preferred Shares shall automatically convert into common shares.
in addition to those otherwise provided by law and by the Articles.
IN WITNESS WHEREOF, said TELEHUB COMMUNICATIONS CORPORATION has caused its
corporate seal to be hereunto affixed and this certificate to be signed by
DONALD H. SLEDGE, its President, and MICHAEL L. GLASER, its Secretary, on
January 31, 1997.
By: /s/ DONALD H. SLEDGE By: /s/MICHAEL L. GLASER
----------------------------------- ----------------------------
Donald H. Sledge, President Michael L. Glaser, Secretary
Certificate: Page 1
<PAGE> 2
STATE OF COLORADO )
)SS.
CITY & COUNTY OF DENVER )
On January 31, 1997, personally appeared before me, a Notary Public,
Donald H. Sledge and Michael L. Glaser, who acknowledged that they executed the
above instrument.
[SEAL] Elizabeth Paul
My Commission Expires
On March 30, 1999
/s/ ELIZABETH PAUL
--------------------------------------
Notary Public
CERTIFICATE: PAGE 2
<PAGE> 1
EXHIBIT 3.A.3
BYLAWS OF TELEHUB COMMUNICATIONS CORPORATION
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 1. GENERAL PROVISIONS........................ 1
1.1. NAME................................................................... 1
1.2. DEFINITIONS............................................................ 1
1.3. APPLICATION............................................................ 1
1.4. PRINCIPAL OFFICE....................................................... 1
1.5. REGISTERED AGENT....................................................... 1
1.6. FISCAL YEAR............................................................ 2
1.7. AMENDMENTS............................................................. 2
ARTICLE 2. DIRECTORS........................... 2
2.1. GENERAL POWERS......................................................... 2
2.2. CLASSIFICATION AND TENURE.............................................. 2
2.3. NUMBER AND QUALIFICATIONS.............................................. 2
2.4. QUALIFICATIONS......................................................... 2
2.5. RESIGNATION............................................................ 2
2.6. REMOVAL................................................................ 2
2.7. VACANCIES.............................................................. 3
2.8. CHAIRMAN AND VICE-CHAIRMAN............................................. 3
2.9. COMMITTEES............................................................. 3
2.10. COMPENSATION........................................................... 3
ARTICLE 3. BOARD AND COMMITTEE MEETINGS.................. 3
3.1. BOARD MEETINGS......................................................... 3
3.2. COMMITTEE MEETINGS..................................................... 3
3.3. NOTICE................................................................. 3
3.4. EX OFFICIO MEMBERS..................................................... 4
3.5. QUORUM................................................................. 4
3.6. MANNER OF ACTING....................................................... 4
3.7. INFORMAL ACTION........................................................ 4
3.8. PARTICIPATION BY ELECTRONIC MEANS...................................... 4
3.9. PRESUMPTION OF ASSENT.................................................. 4
ARTICLE 4. OFFICERS............................ 4
4.1. EXECUTIVE OFFICERS..................................................... 4
4.2. OTHER OFFICERS......................................................... 4
4.3. CHIEF EXECUTIVE OFFICER................................................ 4
4.4. TREASURER.............................................................. 5
4.5. SECRETARY.............................................................. 5
4.6. PERFORMANCE BONDS...................................................... 5
4.7. COMPENSATION........................................................... 5
ARTICLE 5. TRANSACTIONS BY CORPORATION................... 5
5.1. CONTRACTS.............................................................. 5
5.2. LOANS.................................................................. 5
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
5.3. CHECKS & DRAFTS. . . . . . . . . . . . . . . . . . . . 5
5.4. DEPOSITS . . . . . . . . . . . . . . . . . . . . . . . 5
5.5. EXECUTION OF DOCUMENTS . . . . . . . . . . . . . . . . 5
5.6. INTERESTED TRANSACTIONS . . . . . . . . . . . . . . . 5
5.7. COMBINATIONS WITH INTERESTED SHAREHOLDERS. . . . . . . 6
ARTICLE 6. DOCUMENTS, RECORDS & REPORTS . . . . . 6
6.1. RECORDS AT REGISTERED OFFICE . . . . . . . . . . . . . 6
6.2. CORPORATE RECORD . . . . . . . . . . . . . . . . . . . 6
6.3. FINANCIAL RECORDS. . . . . . . . . . . . . . . . . . . 6
ARTICLE 7. SHAREHOLDER MEETINGS . . . . . . . . . 6
7.1. MEETINGS . . . . . . . . . . . . . . . . . . . . . . . 6
7.2. NOTICE OF MEETING. . . . . . . . . . . . . . . . . . . 6
7.3. INFORMAL ACTION BY SHAREHOLDERS. . . . . . . . . . . . 6
7.4. NOMINATIONS OF DIRECTORS . . . . . . . . . . . . . . . 7
7.5. PROPOSALS SUBMITTED BY SHAREHOLDERS. . . . . . . . . . 7
ARTICLE 8. VOTING BY SHAREHOLDERS . . . . . . . . 7
8.1. RECORD DATE. . . . . . . . . . . . . . . . . . . . . . 7
8.2. SHAREHOLDER LIST . . . . . . . . . . . . . . . . . . . 8
8.3. QUORUM . . . . . . . . . . . . . . . . . . . . . . . . 8
8.4. APPROVAL OF ORDINARY RESOLUTION. . . . . . . . . . . . 8
8.5. APPROVAL OF SPECIAL RESOLUTIONS. . . . . . . . . . . . 8
8.6. PROXIES. . . . . . . . . . . . . . . . . . . . . . . . 8
8.7. VOTING OF SHARES . . . . . . . . . . . . . . . . . . . 8
8.8. VOTING OF SHARES BY CERTAIN SHAREHOLDERS . . . . . . . 9
8.9. VOTING BY BALLOT . . . . . . . . . . . . . . . . . . . 9
8.10. NO CUMULATIVE VOTING . . . . . . . . . . . . . . . . . 9
ARTICLE 9. ACQUISITION OF CONTROLLING INTEREST. . 9
9.1. APPLICATION OF ACT SECTION 78.3782 - 78.3793 . . . . . 9
9.2. VOTING RIGHTS OF ACQUIRING PERSON. . . . . . . . . . . 9
9.3. NOTIFICATION TO CORPORATION. . . . . . . . . . . . . . 9
9.4. BOARD REVIEW . . . . . . . . . . . . . . . . . . . . . 10
9.5. SHAREHOLDER REVIEW . . . . . . . . . . . . . . . . . . 10
9.6. REDEMPTION OF CONTROL SHARES . . . . . . . . . . . . . 10
9.7. NO CORPORATION PURCHASE OF SHARES. . . . . . . . . . . 10
ARTICLE 10. SHARE CERTIFICATES. . . . . . . . . . 10
10.1. CERTIFICATES . . . . . . . . . . . . . . . . . . . . . 10
10.2. CANCELLATION OF CERTIFICATES . . . . . . . . . . . . . 10
10.3. LOST, STOLEN OR DESTROYED CERTIFICATES . . . . . . . . 11
</TABLE>
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<PAGE> 3
ARTICLE 1. GENERAL PROVISIONS
1.1. NAME. The name of the corporation is Telehub Communications Corporation
(the "Corporation").
1.2. DEFINITIONS. Unless inconsistent with the subject or context, in the
bylaws the term:
"Act" means the General Corporation Law of Nevada, Nevada Revised
Statutes, title 7, chapter 78.
"Annual Meeting" or "AGM" means the Annual General Meeting of
Shareholders.
"Articles" means the Corporation's Articles of Incorporation.
"Board" means the Corporation's Board of Directors.
"CEO" means the Corporation's Chief Executive Officer.
"Committee" means a committee designated by the Board.
"Directors" means a member of the Board.
"Exchange Act" means the Federal Securities Exchange Act of 1934, as
amended.
"Member" means a member of the Board or of a Committee.
"Officer" means an Executive Officer or an assistant or subordinate
officer.
"Proposal" means any proposal for action to be presented to the
Shareholders, including Amendments to the Articles and these bylaws.
"Secretary" means the Corporation's Secretary. "Shareholder" means a
shareholder of the Corporation.
"Special Resolution" means a special resolution approved by Shareholders
in accordance with Section 8.5.
1.2.1. Unless inconsistent with the subject or context, the meaning of any
words and phrases defined in the Act or Articles shall bear the same meaning in
these bylaws.
1.2.2. Words importing the singular include the plural and vice versa,
words importing the male gender shall include the female gender, and words
importing persons shall include corporations.
1.3. APPLICATION. These bylaws shall govern the management of the
Corporation's business and the regulation of the Corporation's affairs. These
bylaws are subject to the provisions of the Act and the Articles, shall be
interpreted consistently with the Act and Articles.
1.4. PRINCIPAL OFFICE. The Corporation's principal office shall initially
be located at 1425 Tri-State Parkway, Gurnee, Illinois 60031. The Corporation
may relocate that office or maintain such other offices, either within or
without the State of Nevada, as the Board of Directors may designate or as the
business of the Corporation may require.
1.5. REGISTERED AGENT. The Corporation's initial registered agent in the
State of Nevada shall be The Corporation Trust Company of Nevada and the initial
registered office in
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the State of Nevada is located at One East First Street, Reno, Nevada 89501. The
Board may change the Corporation's registered agent or registered office in
accordance with the Act.
1.6. FISCAL YEAR. The Corporation's fiscal year shall begin on the first
day of January in each calendar year.
1.7. AMENDMENTS. These Bylaws may be altered, amended or repealed and new
Bylaws may be adopted by the Board without further Shareholder action.
ARTICLE 2. DIRECTORS
2.1. GENERAL POWERS. The business and affairs of the Corporation shall be
managed by its Board of Directors. As provided in the Act, directors shall
exercise their powers in good faith and with a view to the interests of the
Corporation (Act Section 78.138).
2.2. CLASSIFICATION AND TENURE. The directorships shall be divided into
three classes as nearly equal in size as is practicable, hereby designated
Classes A, B, and C. The initial terms of office for Directors in each class
will expire as follows:
Class A: at the first AGM;
Class B: at the second AGM;
Class C: at the third AGM;
Directors elected at an AGM to succeed expiring directorships shall hold office
until the third AGM following the election and that Director's successor has
been duly elected and qualified.
2.3. NUMBER AND QUALIFICATIONS. The number of directors shall be
established by Board resolution except that there shall be at least one director
and no more than nine directors. The number of directors shall only be changed
by Board resolution and any increase or decrease by more than two directors
during a fiscal quarter shall require unanimous Board approval. Any increase or
decrease in directors shall be so apportioned among the classes as to make all
classes as nearly equal in number as practicable, provided that any decrease in
the number of directors shall not shorten the term of any incumbent Director.
2.4. QUALIFICATIONS. Directors must be natural persons over the age of 18
but need not be Shareholders.
2.5. RESIGNATION. A Director may resign at any time by giving written
notice to the Chairman and Secretary. The resignation of any Director shall take
effect upon receipt of the notice by the Secretary or at such later time as
shall be specified in such notice; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective. When
one or more Directors shall resign from the board, effective at a future date, a
majority of the Directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective.
2.6. REMOVAL. Directors may only be removed from office for cause and such
removal requires a Special Resolution by the Shareholders.
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2.7. VACANCIES. Vacant directorships and newly created directorships may be
filled only by a majority vote of the remaining Directors, even if less than a
quorum, at any meeting of the Board. A person chosen to fill a vacant or
newly-created directorship shall hold office until the expiration of the term
for that directorship class and until the Director's successor has been duly
elected and qualified.
2.8. CHAIRMAN AND VICE-CHAIRMAN. The Board shall designate a Chairman and
one or more Vice-Chairmen. The Chairman (or the senior Vice-Chairman present)
shall preside at all meetings of the Board and the Shareholders.
2.9. COMMITTEES. The Board may designate one or more committees which, to
the extent provided by Board resolution, shall exercise the Board's powers in
the management and affairs of the Corporation. Committee Members need not be
Directors. Each Committee shall have a Chairman, with responsibilities for
convening and presiding over Committee meetings.
2.10. COMPENSATION. By Board resolution and irrespective of any Director's
personal interest, each Director may be paid any expenses of attendance at each
Board or Committee meeting, and may be paid a stated salary as Director or a
fixed sum for attendance at each Board or Committee meeting. No such payment
shall preclude any Director from serving the Corporation in any other capacity
and receiving compensation therefor.
ARTICLE 3. BOARD AND COMMITTEE MEETINGS
3.1. BOARD MEETINGS. The Board shall meet, without notice other than this
bylaw, at the same location and immediately following the AGM. Other meetings of
the Board shall be called by the Chairman or a Vice-Chairman, upon request by
any two Directors or the Corporation's CEO or in the discretion of the Chairman
and Vice-Chairman. The meeting shall be held within 30 days of any request and
the person calling the meeting shall determine the time and place of the
meeting.
3.2. COMMITTEE MEETINGS. Committee meetings shall be called by the
Committee Chairman upon the request of any Member.
3.3. NOTICE. The person calling a Board or Committee meeting shall inform
the Secretary, who shall prepare a written notice with the time and place of the
meeting and deliver this notice:
3.3.1. By mail or personal delivery to each Member at his business
office at least three calendar days prior to the meeting. Mailed notice
shall be deemed to be delivered when deposited in the United States mail,
so addressed, with postage thereon prepaid.
3.3.2. Alternatively, by facsimile to the Member's office one business
day prior to the meeting. Notice shall be deemed to be delivered at the
time indicated on the facsimile or sender confirmation.
3.3.3. Notice to any Member may be waived; attendance at any meeting
shall constitute a waiver of notice of such meeting, except when the Member
has, prior
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to the meeting, provided the Chairman with written objections to the
validity of the meeting.
The notice need not specify the purpose or business to be transacted at
the meeting.
3.4. EX OFFICIO MEMBERS. The Chairman and the Secretary may attend any
Board or Committee meeting but, unless otherwise designated as Members, are not
counted for purposes of ascertaining a quorum or for voting. If present, the
Secretary shall keep the minutes.
3.5. QUORUM. A majority of the Members shall constitute a quorum for the
transaction of business at any meeting. If a quorum is not present at a meeting,
then a majority of the Members present may reschedule and then adjourn the
meeting.
3.6. MANNER OF ACTING. Except as otherwise required by law or by the
Articles, the act of the majority of the Members present at a meeting at which a
quorum is present shall be the act of the Board (or Committee).
3.7. INFORMAL ACTION. Any action by the Board or by a Committee may be
taken without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by all of the Members entitled to vote with respect to
the subject matter thereof.
3.8. PARTICIPATION BY ELECTRONIC MEANS. Any Member may participate in a
meeting by means of telephone conference or similar communications equipment by
which all other meeting participants can hear each other at the same time. Such
electronic participation shall constitute the Member's personal presence at the
meeting.
3.9. PRESUMPTION OF ASSENT. A director of the corporation who is present at
a meeting of the Board of Directors at which action on any corporate matter is
taken shall be presumed to have assented to the action taken unless his dissent
shall be entered in the minutes of the meeting or unless he shall file his
written dissent to such action with the person acting as the Secretary of the
meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
ARTICLE 4. OFFICERS
4.1. EXECUTIVE OFFICERS. The Corporation's Executive Officers shall include
the Chairman, Vice-Chairman, Chief Executive Officer ("CEO"), Secretary,
Treasurer and other officers so designated by the Board. Executive Officers
serve at the pleasure of the Board, which has exclusive discretion to appoint
and remove the Executive Officers. At its annual meeting, the Board shall
identify the incumbent Executive Officers.
4.2. OTHER OFFICERS. The Board may create assistant and subordinate offices
and may delegate its power to appoint and remove such officers to an Executive
Officer.
4.3. CHIEF EXECUTIVE OFFICER. The CEO shall be the President and chief
executive officer of the corporation, shall, subject to the direction of the
Board, supervise and control all
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of the Corporation's business and affairs, and, in general, shall perform all
duties incident to the office of CEO and President and such other duties as may
be prescribed by the Board.
4.4. TREASURER. The Treasurer shall be responsible for the financial and
accounting affairs of the Corporation. To this end, the Treasurer shall maintain
the accounting books and records, prepare financial statements, establish
accounts with financial institutions as appropriate, be responsible for
corporate funds, securities and property and, in general, perform all of the
duties incident to the office of Treasurer and other duties assigned by the CEO
or the Board.
4.5. SECRETARY. The Secretary shall prepare and deliver notices of
meetings, attend meetings, record the minutes of such proceedings, maintain the
Corporation's official records and minutes, and perform other ministerial
functions for the Corporation.
4.6. PERFORMANCE BONDS. If the Board by resolution shall so require, any
Officer or agent of the Corporation shall give bond to the Corporation in such
amount and with such surety as the Board may deem sufficient, conditioned upon
the faithful performance of their respective duties and offices.
4.7. COMPENSATION. The Board shall determine the compensation for the
Corporation's Officers and no Officer shall be prevented from receiving such
salary by reason of the fact that he is also a Director.
ARTICLE 5. TRANSACTIONS BY CORPORATION
5.1. CONTRACTS. The Board may authorize any Officer or agent to enter into
any contract or execute and deliver any instrument in the name of and on behalf
of the Corporation, and such authority may be general or confined to specific
instances.
5.2. LOANS. No loans shall be contracted on behalf of the Corporation and
no evidences of indebtedness shall be issued in its name unless authorized by
a Board resolution. Such authority may be general or confined to specific
instances.
5.3. CHECKS & DRAFTS. All checks, drafts or other orders for the payment of
money, notes or other evidences of indebtedness issued in the name of the
Corporation shall be signed by such Officer or agent and in such manner as
specified by Board resolution.
5.4. DEPOSITS. All deposits shall be endorsed in the name of the
Corporation for deposit only into the Corporation's bank accounts.
5.5. EXECUTION OF DOCUMENTS. When the Board has expressly approved a
transaction, any Executive Officer may execute any necessary documents on behalf
of the Corporation. When the Board has delegated authority for a transaction to
a specific Officer or agent, then that delegatee must execute the necessary
documents.
5.6. INTERESTED TRANSACTIONS. Directors, Officers and agents must disclose
to the Board any known relationship or financial interest that might, directly
or indirectly, conflict with
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the interests of the Corporation or that might pertain to a transaction
contemplated by the Company. All interested transactions must comply with
Section 78.140 of the Act.
5.7. COMBINATIONS WITH INTERESTED SHAREHOLDERS. After the Corporation
becomes subject to Sections 12 or 15(d) of the Exchange Act, transactions
between the Corporation and interested Shareholders must comply with sections
78.411 to 78.444, inclusive, of the Act.
ARTICLE 6. DOCUMENTS, RECORDS & REPORTS
6.1. RECORDS AT REGISTERED OFFICE. At its registered office in the State
of Nevada, the Corporation shall keep a current copy of the records required by
Section 78.105 of the Act.
6.2. CORPORATE RECORDS. At its principal business office, the Corporation
shall maintain its corporate records and documents, including its current
Articles and bylaws, all minutes of Board, Committee and Shareholder meetings,
all Board, Committee and Shareholder resolutions and consents, and reports to
government agencies.
6.3. FINANCIAL RECORDS. The Corporation shall keep proper books of account
and accounting records in respect to all financial and other transactions,
prepare financial statements on the Corporation's financial condition. Unless
otherwise determined by the Board or Special Resolution by the Shareholders, no
Shareholder shall be entitled to inspect the Corporation's accounting records.
ARTICLE 7. SHAREHOLDER MEETINGS
7.1. MEETINGS. The AGM shall be held for the purpose of electing Directors
and for the transaction of such other business as may come before the meeting,
while special meetings may be held for any purposes. The AGM and special
Shareholder meetings may only be called by the Corporation's Chairman,
Vice-Chairman or CEO. The Board may designate the location for the Shareholders
meeting; if no designation is made, the location shall be the Corporation's
principal business office.
7.2. NOTICE OF MEETING. A written notice stating the purpose, the time and
location of the Shareholders meeting shall be prepared, executed by an Executive
Officer, and delivered to each shareholder on the record date. The notice must
be delivered either personally or by mail between ten days and sixty days before
the meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, addressed to the shareholder at the address
appearing on the Corporation's stock transfer books, with postage thereon
prepaid.
7.3. INFORMAL ACTION BY SHAREHOLDERS. Until the Corporation becomes subject
to the requirements of Sections 12 or 15(d) of the Exchange Act, Shareholders
may act without a meeting by written consent signed by all Shareholders entitled
to vote on the proposed action. Thereafter, Shareholders may not act by written
consent without a meeting but, instead, may act only at a duly called annual or
special meeting.
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7.4. NOMINATIONS OF DIRECTORS. Individuals may be nominated for election to
the Board of Directors either by the Board or by a Shareholder. Nominations by
Shareholders must be received by the Corporation at its principal business
office between the first and 120th day of the fiscal year and the nomination
must be accompanied by the following information:
7.4.1. the Shareholder's name, address, the class and number of all
Corporation securities owned by the shareholder;
7.4.2. verification of beneficial ownership on the date of the notice
if Shareholder is not listed in the Corporation's records;
7.4.3. the nominee's name, address and business experience; and
7.4.4. all information required in connection with election contests
by the Exchange Act and the regulations promulgated thereunder.
Only individuals nominated in accordance with these procedures may stand for
election to the Board at a Shareholder meeting. The Board shall have exclusive
authority to determine whether a shareholder nomination has satisfied the
requirements of this section.
7.5. PROPOSALS SUBMITTED BY SHAREHOLDERS. Any proposal, including
Amendments to the Articles and Bylaws, to be submitted for approval by the
Shareholders must first be presented to the Board for its recommendation.
Proposals from Shareholders must be received by the Corporation at its principal
business office between the first and 120th day of the fiscal year accompanied
by the following information:
7.5.1. the Shareholder's name, address, the class and number of all
Corporation securities owned by the Shareholder;
7.5.2. verification of beneficial ownership on the date of the notice
if Shareholder is not listed in the Corporation's records;
7.5.3. a description of the proposal and a supporting statement, which
together shall not exceed 500 words; and
7.5.4. all information required in connection with Shareholder
proposals by the Exchange Act and the regulations promulgated thereunder.
If the Board adopts a resolution expressly recommending the proposal, then the
proposal will be an ordinary resolution; otherwise the proposal will be
designated as a Special Resolution. The Board has exclusive authority to
determine whether a shareholder proposal has satisfied the requirements of this
section and has sole discretion over recommending the proposal.
ARTICLE 8. VOTING BY SHAREHOLDERS
8.1. RECORD DATE. For any event requiring a determination of the
Corporation's Shareholders, the Board may establish a record date; only persons
listed in the Corporation's records as being a Shareholder on that date shall be
deemed to be Shareholders for purposes of that event. The record date shall be
no more than sixty days before the event; if the Board fails to specify a record
date, then the record date shall be the later of the Board resolution
establishing the event or the sixtieth day before the event. Events requiring a
Shareholder determination include Shareholder meetings, payment of dividends,
and other matters.
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8.2. SHAREHOLDER LIST. The Secretary shall prepare a complete record of
the Shareholders entitled to vote at each meeting of shareholders or any
adjournment thereof, arranged in alphabetical order, with the address of and
the number of shares held by each. This list shall be prepared from the
Corporation's stock transfer books using the record date determined in Section
6.1 and shall be available at least ten days before such Shareholder meeting.
The List shall be kept on file at the Corporation's principal business office
and may be inspected by any Shareholder for any purpose germane to the meeting
at any time during usual business hours. Such list shall be produced and kept
open at the time and place of the meeting and may be inspected by any
Shareholder during the whole time of the meeting.
8.3. QUORUM. A majority of the outstanding shares of the Corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at any meeting of Shareholders. No action may be taken at a Shareholders meeting
lacking a quorum at any such meeting, except that a majority of the voting power
so represented may reschedule and adjourn the meeting for a period not to exceed
sixty days without further notice. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might have
been transacted at the meeting as originally noticed. The Shareholders present
at a duly organized meeting may continue to transact business until adjournment
despite the withdrawal of enough Shareholders to leave less than a quorum.
8.4. APPROVAL OF ORDINARY RESOLUTION. Unless designated as a Special
Resolution, any matter presented for a vote by the Shareholders shall be deemed
an ordinary resolution. If the number of affirmative votes exceeds the number of
negative votes, then the ordinary resolution is approved and shall be deemed to
be the act of the Shareholders.
8.5. APPROVAL OF SPECIAL RESOLUTIONS. Approval of matters designated as
Special Resolutions requires the affirmative vote of Shareholders representing
at least of two-thirds (or more if so provided in the Articles or these bylaws)
of the issued and outstanding Shares entitled to vote on the Special Resolution.
8.6. PROXIES. At all Shareholders meetings, a shareholder may vote in
person or by proxy executed in writing by the shareholder or by his duly
authorized attorney-in-fact. Such proxy shall be filed with the Secretary of the
corporation before or at the time of the meeting. No proxy shall be valid after
eleven months from the date of its execution, unless otherwise provided in the
proxy.
8.7. VOTING OF SHARES. Unless otherwise provided by the Articles or these
Bylaws, each outstanding Common Share shall be entitled to one vote upon each
matter submitted for a vote by Shareholders, and each fractional share shall be
entitled to a corresponding fractional vote on each such matter. The voting
rights of Preferred Shares shall be established by the Board resolution creating
each series of Preferred Shares.
8.8. VOTING OF SHARES BY CERTAIN SHAREHOLDERS.
8.8.1. Shares held by another corporation may be voted by such person
authorized by that corporation.
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8.8.2. Shares held in the name of a deceased person, a minor ward or
an incompetent person, may be voted by his administrator, executor,
court appointed guardian or conservator, either in person or by proxy
without a transfer of such shares into the name of such administrator,
executor, court appointed guardian or conservator.
8.8.3. Shares held in the name of a receiver may be voted by such
receiver and shares held by or under the control of a receiver may be
voted by such receiver without the transfer thereof into his name if
authority so to do be contained in an appropriate order of the court
by which such receiver was appointed.
8.8.4. A Shareholder whose shares are pledged shall be entitled to
vote such shares until the shares have been transferred into the name
of the pledgee, and thereafter the pledgee shall be entitled to vote
the shares so transferred.
8.8.5. Neither shares of its own stock belonging to this Corporation,
nor shares of its own stock held by it in a fiduciary capacity, nor
shares of its own stock held by another corporation of which the
majority of shares entitled to vote for the election of directors of
such corporation is held by this corporation may be voted, directly or
indirectly, at any meeting and shall not be counted in determining the
total number of outstanding shares at any given time.
8.8.6. Redeemable shares which have been called for redemption shall
not be entitled to vote on any matter and shall not be deemed
outstanding shares after the date of the redemption notice.
8.9. VOTING BY BALLOT. Voting on any question or in any election may be by
voice vote unless the presiding officer shall order or any Shareholder shall
demand voting by ballot.
8.10. NO CUMULATIVE VOTING. No Shareholder shall be permitted to accumulate
his votes by giving one candidate as many votes as the number of such directors
multiplied by the number of his shares shall equal, or by distributing such
votes on the same principal among any number of candidates.
ARTICLE 9. ACQUISITION OF CONTROLLING INTEREST
9.1. APPLICATION OF ACT SECTION 78.3782 - 78.3793. Words and terms defined
in Act sections 78.3782 to 78.3788 shall have the same meaning in this Article,
except that the Corporation shall be considered an "issuing corporation" when it
becomes subject to Sections 12 or 15(d) of the Exchange Act. Act sections
78.3788 and 78.3793 shall not apply, and Act sections 78.3789 to 78.3792 shall
apply to the extent provided in these bylaws.
9.2. VOTING RIGHTS OF ACQUIRING PERSON. An Acquiring Person and those
persons acting in association with an Acquiring Person obtain only such voting
rights in the Control Shares as are conferred by a Board resolution or a Special
Resolution of the Shareholders.
9.3. NOTIFICATION TO CORPORATION. An Acquiring Person must notify the
Corporation about the Acquisition of a Controlling Interest by delivering a
statement containing the information specified in Act section 78.3789 to the
Company's principal business office.
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Three copies of this statement must be provided; one copy addressed to the
Chairman, another to the CEO and the third to the Secretary.
9.4. BOARD REVIEW. As soon as practicable after receipt of the statement,
the Board shall meet to review the statement and to decide whether to grant
voting rights to the Control Shares. In its sole discretion, the Board may adopt
a resolution granting such voting rights.
9.5. SHAREHOLDER REVIEW. If the Board does not approve the proposed
Acquisition, the Acquiring Person may seek Shareholder conferral of voting
rights.
9.5.1. The Acquiring Person may request the Board to convene a special
meeting of the Shareholders if the Acquiring Person undertakes to pay all
costs and expenses incurred by the Corporation in connection with such
special meeting.
9.5.2. Within 15 days after receiving the Acquiring Person's request to
convene a special meeting of Shareholders, the Board will schedule a
special meeting and make any filings required by federal or state
regulatory authorities.
9.5.3. Such special meeting shall be held between 30 and 50 days after
receiving SEC approval of the proxy material to be sent to Shareholders.
9.5.4. Alternatively, the Acquiring Person can request that the proposed
Acquisition be presented to Shareholders at the next AGM or special
meeting.
By Special Resolution, the Shareholders may confer voting rights to the Control
Shares; Interested Stockholders are not entitled to vote on this Special
Resolution.
9.6. REDEMPTION OF CONTROL SHARES. The Board, in its sole discretion, may
authorize the Corporation to redeem the Acquiring Person's Control Shares in
accordance with Act section 78.3792.
9.7. NO CORPORATION PURCHASE OF SHARES. Shareholders are not entitled to
demand payment for the fair market value of their Shares if the Control Shares
are accorded full voting rights; thus Act section 78.3793 does not apply.
ARTICLE 10. SHARE CERTIFICATES
10.1. CERTIFICATES. The Board may make such rules and regulations as it may
deem appropriate concerning the form, issuance, transfer and registration of
certificates for the Corporation's Shares, including the appointment of transfer
agents and registrars. The corporation shall not issue certificates representing
fractional shares and shall not be obligated to make any transfers creating a
fractional interest in a share of stock. The corporation may, but shall not be
obligated to, issue scrip in lieu of any fractional shares, such scrip to have
terms and conditions specified by the Board.
10.2. CANCELLATION OF CERTIFICATES. All certificates surrendered to the
Corporation for transfer shall be cancelled and no new certificates shall be
issued in lieu thereof until the former certificate for a like number of shares
shall have been surrendered and cancelled, except as herein provided with
respect to lost, stolen or destroyed certificates.
10
<PAGE> 13
10.3. LOST, STOLEN OR DESTROYED CERTIFICATES. Any shareholder claiming that
his certificate for shares is lost, stolen or destroyed may make an affidavit
for affirmation of that fact and lodge the same with the Secretary accompanied
by a signed application for a new certificate. Thereupon, and upon the giving of
a satisfactory bond of indemnity to the Corporation not exceeding an amount
double the value of the shares as represented by such certificate (the necessity
for such bond and the amount required to be determined by the Chief Executive
Officer and Treasurer), a new certificate may be issued of the same tenor and
representing the same number, class and series of shares as were represented by
the certificate alleged to be lost, stolen or destroyed.
CERTIFICATE
I hereby certify that the attached document constitutes the Bylaws of
TELEHUB COMMUNICATIONS CORPORATION, adopted by the Board of Directors of the
corporation as of SEPTEMBER 26, 1996.
/S/ DONALD H. SLEDGE
-----------------------------
Donald H. Sledge, Secretary
11
<PAGE> 1
EXHIBIT 4.1
- --------------------------------------------------------------------------------
TELEHUB COMMUNICATIONS CORPORATION,
as Issuer,
AND
TELEHUB NETWORK SERVICES CORPORATION,
as Guarantor,
AND
TELEHUB TECHNOLOGIES CORPORATION,
as Guarantor,
AND
TELEHUB LEASING CORPORATION,
as Guarantor,
AND
STATE STREET BANK AND TRUST COMPANY,
as Trustee
------------------
$125,000,000
SERIES A AND SERIES B
13 7/8% SENIOR DISCOUNT NOTES DUE 2005
------------------
INDENTURE
Dated as of July 30, 1998
------------------
- --------------------------------------------------------------------------------
<PAGE> 2
CROSS-REFERENCE TABLE*
Trust Indenture Indenture
Act Section Section
- ----------------- ----------------
310(a)(1)...................................................... 7.10
(a)(2)......................................................... 7.10
(a)(3)......................................................... N.A.
(a)(4)......................................................... N.A.
(a)(5)......................................................... 7.10
(b)............................................................ 7.8; 7.10
(c)............................................................ N.A.
311(a)......................................................... 7.11
(b)............................................................ 7.11
(c)............................................................ N.A.
312(a)......................................................... 2.5
(b)............................................................ 11.3
(c)............................................................ 11.3
313(a)......................................................... 7.6
(b)(1)......................................................... N.A.
(b)(2)......................................................... 7.6
(c)............................................................ 7.6
(d)............................................................ 7.6
314(a)......................................................... 4.3; 4.4
(b)............................................................ N.A.
(c)(1)......................................................... 11.4
(c)(2)......................................................... 11.4
(c)(3)......................................................... N.A.
(d)............................................................ N.A.
(e)............................................................ 11.5
(f)............................................................ N.A.
315(a)......................................................... 7.1(2)
(b)............................................................ 7.5
(c)............................................................ 7.1(1)
(d)............................................................ 7.1(3)
(e)............................................................ 6.11
316(a)(last sentence).......................................... 2.9
(a)(1)(A)...................................................... 6.5
(a)(1)(B)...................................................... 6.4
(a)(2)......................................................... N.A.
(b)............................................................ 6.7
(c)............................................................ 9.4
317(a)(1)...................................................... 6.8
(a)(2)......................................................... 6.9
(b)............................................................ 2.4
318(a)......................................................... 11.1
(b)............................................................ N.A.
(c)............................................................ 11.1
- ---------------------------
N.A. means not applicable
*This Cross-Reference Table is not part of this Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
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ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
<S> <C> <C>
SECTION 1.1. Definitions.........................................................................................2
SECTION 1.2. Other Definitions..................................................................................16
SECTION 1.3. Incorporation by Reference of Trust Indenture Act..................................................17
SECTION 1.4. Rules of Construction..............................................................................17
ARTICLE 2
THE NOTES
SECTION 2.1. Form and Dating....................................................................................18
SECTION 2.2. Execution and Authentication.......................................................................19
SECTION 2.3. Registrar and Paying Agent.........................................................................20
SECTION 2.4. Paying Agent to Hold Assets in Trust...............................................................20
SECTION 2.5. Holder Lists.......................................................................................21
SECTION 2.6. Transfer and Exchange..............................................................................21
SECTION 2.7. Replacement Notes..................................................................................30
SECTION 2.8. Outstanding Notes..................................................................................31
SECTION 2.9. Treasury Notes.....................................................................................31
SECTION 2.10. Temporary Notes...................................................................................31
SECTION 2.11. Cancellation......................................................................................32
SECTION 2.12. Defaulted Interest................................................................................32
SECTION 2.13. CUSIP Number......................................................................................32
SECTION 2.14. Deposit of Moneys.................................................................................32
SECTION 2.15. Liquidated Damages Under Registration Rights Agreement............................................33
ARTICLE 3
REDEMPTION AND OFFERS TO PURCHASE
SECTION 3.1. Notice to Trustee..................................................................................33
SECTION 3.2. Selection of Notes to be Redeemed..................................................................33
SECTION 3.3. Notice of Redemption...............................................................................34
SECTION 3.4. Effect of Notice of Redemption.....................................................................35
SECTION 3.5. Deposit of Redemption Price........................................................................35
SECTION 3.6. Notes Redeemed in Part.............................................................................35
SECTION 3.7. Optional Redemption................................................................................36
SECTION 3.8. Mandatory Redemption...............................................................................36
SECTION 3.9. Offer to Purchase by Application of Excess Proceeds................................................37
</TABLE>
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<TABLE>
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ARTICLE 4
COVENANTS
<S> <C> <C>
SECTION 4.1. Payment of Notes...................................................................................39
SECTION 4.2. Maintenance of Office or Agency....................................................................39
SECTION 4.3. Reports ...........................................................................................40
SECTION 4.4. Compliance Certificate.............................................................................40
SECTION 4.5. Taxes ...........................................................................................41
SECTION 4.6. Stay, Extension and Usury Laws.....................................................................41
SECTION 4.7. Company and Corporate Existence and Maintenance
of Properties and Insurance................................................................41
SECTION 4.8. Limitation on the Incurrence of Indebtedness.......................................................42
SECTION 4.9. Limitation on Restricted Payments..................................................................44
SECTION 4.10. Limitation on Liens................................................................................46
SECTION 4.11. Limitation on Transactions with Affiliates.........................................................46
SECTION 4.12. Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries.......................46
SECTION 4.13. Business Activities................................................................................47
SECTION 4.14. Asset Sales........................................................................................47
SECTION 4.15. Change of Control..................................................................................48
SECTION 4.16. Payments for Consent...............................................................................50
SECTION 4.17. Limitation on Issuances and Sales of Capital Stock of Subsidiaries ................................51
ARTICLE 5
SUCCESSORS
SECTION 5.1. Limitation on Merger, Consolidation or Sale of Assets..............................................51
SECTION 5.2. Successor Person Substituted.......................................................................52
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.1. Events of Default..................................................................................53
SECTION 6.2. Acceleration.......................................................................................55
SECTION 6.3. Other Remedies.....................................................................................55
SECTION 6.4. Waiver of Past Defaults............................................................................55
SECTION 6.5. Control by Majority................................................................................56
SECTION 6.6. Limitation on Suits................................................................................56
SECTION 6.7. Rights of Holders to Receive Payment...............................................................56
SECTION 6.8. Collection Suit by Trustee.........................................................................57
SECTION 6.9. Trustee May File Proofs of Claim...................................................................57
SECTION 6.10. Priorities.........................................................................................57
SECTION 6.11. Undertaking for Costs..............................................................................58
</TABLE>
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<TABLE>
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ARTICLE 7
TRUSTEE
<S> <C> <C>
SECTION 7.1. Duties of Trustee..................................................................................58
SECTION 7.2. Rights of Trustee..................................................................................59
SECTION 7.3. Definitive Rights of Trustee.......................................................................60
SECTION 7.4. Trustee's Disclaimer...............................................................................60
SECTION 7.5. Notice of Defaults.................................................................................60
SECTION 7.6. Reports by Trustee to Holders......................................................................60
SECTION 7.7. Compensation and Indemnity.........................................................................61
SECTION 7.8. Replacement of Trustee.............................................................................62
SECTION 7.9. Successor Trustee by Merger, etc...................................................................63
SECTION 7.10. Eligibility; Disqualification......................................................................63
SECTION 7.11. Preferential Collection of Claims Against Company..................................................63
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.1. Option to Effect Legal Defeasance or Covenant Defeasance...........................................64
SECTION 8.2. Legal Defeasance and Discharge.....................................................................64
SECTION 8.3. Covenant Defeasance................................................................................64
SECTION 8.4. Conditions to Legal Defeasance or Covenant Defeasance..............................................65
SECTION 8.5. Deposited Money and Government Securities to be Held in Trust;
Other Miscellaneous Provisions.............................................................66
SECTION 8.6. Repayment to Company...............................................................................67
SECTION 8.7. Reinstatement......................................................................................67
SECTION 8.8. Discharge of Liability on Securities; Defeasance...................................................67
ARTICLE 9
AMENDMENTS
SECTION 9.1. Without Consent of Holders.........................................................................68
SECTION 9.2. With Consent of Holders............................................................................69
SECTION 9.3. Compliance with Trust Indenture Act................................................................70
SECTION 9.4. Revocation and Effect of Consents..................................................................70
SECTION 9.5. Notation on or Exchange of Notes...................................................................71
SECTION 9.6. Trustee to Sign Amendments, etc....................................................................71
</TABLE>
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<TABLE>
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ARTICLE 10
GUARANTEES
<S> <C> <C>
SECTION 10.1. Unconditional Guarantee...........................................................................71
SECTION 10.2. Severability......................................................................................72
SECTION 10.3. Release of a Guarantor............................................................................72
SECTION 10.4. Limitation of Guarantor's Liability...............................................................73
SECTION 10.5. Guarantors May Consolidate, etc., on Certain Terms................................................73
SECTION 10.6. Contribution......................................................................................73
SECTION 10.7. Waiver of Subrogation.............................................................................74
SECTION 10.8. Execution of Guarantee............................................................................74
SECTION 10.9. Waiver of Stay, Extension or Usury Laws...........................................................75
ARTICLE 11
MISCELLANEOUS
SECTION 11.1. Trust Indenture Act Controls......................................................................75
SECTION 11.2. Notices...........................................................................................75
SECTION 11.3. Communication by Holders with Other Holders.......................................................76
SECTION 11.4. Certificate and Opinion as to Conditions Precedent................................................76
SECTION 11.5. Statements Required in Certificate or Opinion.....................................................77
SECTION 11.6. Rules by Trustee and Agents.......................................................................77
SECTION 11.7. Legal Holidays....................................................................................77
SECTION 11.8. No Recourse Against Others........................................................................78
SECTION 11.9. Governing Law.....................................................................................78
SECTION 11.10. No Adverse Interpretation of Other Agreements....................................................78
SECTION 11.11. Successors.......................................................................................78
SECTION 11.12. Severability.....................................................................................78
SECTION 11.13. Counterpart Originals............................................................................78
SECTION 11.14. Table of Contents, Headings, etc.................................................................79
</TABLE>
<PAGE> 7
PAGE
Exhibits
Exhibit A FORM OF NOTE AND GUARANTEE A-1
Exhibit B FORM OF CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR
REGISTRATION OF TRANSFER OF NOTES B-1
Exhibit C FORM OF CERTIFICATE TO BE DELIVERED BY ACCREDITED
INSTITUTIONS C-1
Exhibit D FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH
TRANSFERS PURSUANT TO REGULATION S D-1
<PAGE> 8
INDENTURE, dated as of July 30, 1998, by and among TELEHUB
COMMUNICATIONS CORPORATION, a Nevada corporation (the "Company"), TELEHUB
NETWORK SERVICES CORPORATION, an Illinois corporation ("TNS"), TELEHUB
TECHNOLOGIES CORPORATION, a Nevada corporation ("TTC"), TELEHUB LEASING
CORPORATION, a Nevada corporation ("TLC" and collectively with TNS and TTC, the
"Guarantors"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust
company, as trustee ("Trustee").
Each party hereto agrees as follows for the benefit of each other
and for the equal and ratable benefit of the Holders of the Company's 13 7/8%
Series A Senior Discount Notes due 2005 of the Company (the "Series A Notes"),
and the 13 7/8% Series B Senior Discount Notes due 2005 of the Company (the
"Series B Notes" and together with the Series A Notes, the "Notes").
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1. Definitions
"Accreted Value" means as of any date of determination prior to
July 31, 2001, an amount per $1,000 principal amount at maturity of any Note
that is equal to the sum of (a) the initial offering price of such Note ($668.43
per $1,000 principal amount at maturity) and (b) the portion of the excess of
the principal amount at maturity of such Note over such initial offering price
which shall have been accreted thereon through such date, such amount to be so
accreted on a daily basis at the rate of 13 7/8% per annum on the initial
offering price of such Note, compounded semi-annually on each January 31 and
July 31 from the Issue Date through the date of determination, computed on the
basis of a 360-day year of twelve 30-day months.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or becomes a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the voting securities of a
Person shall be deemed to be control.
2
<PAGE> 9
"Agent" means any Registrar, Paying Agent or co-registrar.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition of any assets (including, without limitation, by way of a sale and
leaseback), other than sales of inventory in the ordinary course of business
consistent with past practices (provided that the sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company and
its Subsidiaries taken as a whole will be governed by the provisions of Section
4.15 and/or Article 5 hereof, and not by the provisions Section 4.14 hereof),
and (ii) the issue or sale by the Company or any of its Subsidiaries of Equity
Interests of any of the Company's Subsidiaries, whether in a single transaction
or a series of related transactions (a) that have a fair market value in excess
of $1.0 million or (b) for net proceeds in excess of $1.0 million.
Notwithstanding the foregoing: (i) a transfer of assets by the Company to a
Wholly Owned Subsidiary or by a Wholly Owned Subsidiary to the Company or to
another Wholly Owned Subsidiary, (ii) a Restricted Payment that is permitted by
Section 4.9 hereof and (iii) a TNS/TTC Transaction will not be deemed to be an
Asset Sale.
"Bank Credit Facility" means (i) one or more revolving credit
facilities entered into by the Company and/or its Subsidiaries, (ii) each
instrument pursuant to which the Obligations under the agreement described in
clause (i) above are amended, deferred, extended, renewed, replaced, refunded or
refinanced, in whole or in part, and (iii) each instrument now or hereafter
evidencing, governing, guaranteeing or securing any Indebtedness under any
agreements described in clause (i) or (ii) above, in each case, as modified,
amended, restated or supplemented from time to time.
"Board of Directors" means, as applicable, the Board of Directors
of the Company or any authorized committee of the Board of Directors.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital lease
that would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership, partnership
interests (whether general or limited) and (iv) any other interest or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii)
securities issued or directly and fully guaranteed or insured by the United
States government or any agency or instrumentality thereof having maturities of
not more than six months from the date of acquisition, (iii) certificates of
deposit and Eurodollar time deposits with maturities of six months or less from
the date of acquisition, bankers' acceptances with maturities not exceeding six
months and overnight bank deposits, in each case with any domestic commercial
bank having capital and surplus in excess of $500 million, and whose short-term
debt has a rating at the time of any such investment of at least "A-1" or the
3
<PAGE> 10
equivalent thereof by Standard & Poor's or at least "P-1" or the equivalent
thereof by Moody's, (iv) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clauses (ii) and
(iii) above entered into with any financial institution meeting the
qualifications specified in clause (iii) above, (v) commercial paper having the
highest rating obtainable from Moody's or Standard & Poor's and in each case
maturing within one year after the date of acquisition and (vi) securities that
are registered under the Securities Act and are sold within forty-five (45)days
of any acquisition of the Company or any of its Subsidiaries for cash (to the
extent of the cash received by the Company or such Subsidiary net of all
transaction costs and taxes).
"Change of Control" means the occurrence of any of the following:
(i) the sale, lease, transfer, conveyance or other disposition (other than by
way of merger or consolidation), in one or a series of related transactions, of
all or substantially all of the assets of the Company and its Subsidiaries,
taken as a whole, to any "person" or "group" (as such terms are used in Section
13(d)(3) and Section 14(d)(2) of the Exchange Act) other than the Principals,
(ii) the adoption of a plan relating to the liquidation or dissolution of the
Company, (iii) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any person
or group (as defined above), other than the Principals, becomes the "beneficial
owner" (as defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act),
directly or indirectly, of more of the voting power of the voting stock of the
Company than at that time is beneficially owned by the Principals, (iv) after
the consummation of any Public Offering, any person or group (as defined above),
other than the Principals, becomes the "beneficial owner" of 35% or more of the
voting power of the voting stock of the Company; or (v) the first day on which
more than a majority of the members of the board of directors of the Company are
not Continuing Directors. For purposes of this definition, any transfer of an
equity interest of an entity that was formed for the purpose of acquiring voting
stock of the Company will be deemed to be a transfer of such portion of such
voting stock as corresponds to the portion of the equity of such entity that has
been so transferred. "Change of Control" shall not mean a TNS/TTC Transaction.
"Company" means the party named as such in this Indenture until a
successor replaces it pursuant to this Indenture and thereafter means the
successor.
"Consolidated Cash Flow" means, with respect to any Person for
any period, the Consolidated Net Income of such Person and its Subsidiaries for
such period plus, without duplication, to the extent deducted in computing
Consolidated Net Income, (i) an amount equal to any extraordinary loss plus any
net loss realized in connection with an Asset Sale, (ii) provision for taxes
based on income or profits of such Person and its Subsidiaries for such period,
(iii) consolidated interest expense of such Person and its Subsidiaries for such
period, whether paid or accrued (including, without limitation and without
duplication, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations) and (iv) depreciation and amortization (including
amortization of goodwill and other intangibles but excluding amortization of
prepaid cash expenses that were paid in a prior period) of such Person and its
Subsidiaries for such period, in each case, on a consolidated basis and
determined in accordance with GAAP. Notwithstanding the
4
<PAGE> 11
foregoing, the provision for taxes on the income or profits of, and the
depreciation and amortization of, a Subsidiary of the referent Person shall be
added to Consolidated Net Income to compute Consolidated Cash Flow only to the
extent (and in same proportion) that the Net Income of such Subsidiary was
included in calculating the Consolidated Net Income of such Person and only if a
corresponding amount would be permitted at the date of determination to be
dividended, directly or indirectly, to the Company by such Subsidiary without
prior governmental approval (that has not been obtained), and without direct or
indirect restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to such Subsidiary or its stockholders.
"Consolidated Debt" means, with respect to any Person as of any
date of determination, the sum, without duplication of (i) the total amount of
Debt of such Person and its Subsidiaries, plus (ii) the total amount of Debt of
any other Person, to the extent that such Debt has been guaranteed by the
referent Person or one or more of its Subsidiaries, plus (iii) the aggregate
liquidation value of all preferred stock of Subsidiaries of such Person, in each
case, determined on a consolidated basis in accordance with GAAP.
"Consolidated Leverage Ratio" means, as of any date of
determination, the ratio of (a) the Consolidated Debt of the Company as of such
date to (b) two times the Consolidated Cash Flow of the Company for the two most
recent full fiscal quarters ending immediately prior to such date for which
internal financial statements are available but in no event ending more than 135
days prior to the date of such determination (the "Measurement Period"),
determined on a pro forma basis after giving effect to all acquisitions or
dispositions of assets made by the Company and its Subsidiaries from the
beginning of such two-quarter period through and including such date of
determination (including any related financing transactions) as if such
acquisitions and dispositions had occurred at the beginning of such two-quarter
period. In addition, for purposes of making the computation referred to above,
(i) acquisitions that have been made by the Company or any of its Subsidiaries,
including through mergers or consolidations and including any related financing
transactions, during the two-quarter Measurement Period or subsequent to such
Measurement Period and on or prior to the date of calculation (the "Calculation
Date") shall be deemed to have occurred on the first day of the two-quarter
Measurement Period and Consolidated Cash Flow for such Measurement Period shall
be calculated without giving effect to clause (iii) of the proviso set forth in
the definition of Consolidated Net Income, (ii) the Consolidated Cash Flow
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded, (iii) if the transaction giving rise to the need to calculate the
Consolidated Leverage Ratio is an incurrence of Indebtedness, the amount of
Indebtedness outstanding at the end of the Measurement Period shall be
calculated after giving effect on a pro forma basis to the incurrence of such
Indebtedness as if such Indebtedness had been outstanding as of the end of the
Measurement Period and to the discharge of any other Indebtedness to the extent
it was outstanding as of the end of the Measurement Period and is to be repaid,
repurchased, defeased or otherwise discharged with the proceeds of such new
Indebtedness as if such Indebtedness has been discharged as of the end of the
Measurement Period, and (iv) if the Company or any Subsidiary has repaid,
repurchased, defeased or otherwise discharged any Indebtedness that was
outstanding as of the end of the Measurement Period or if any Indebtedness that
was outstanding as of the end of the Measurement Period is to be repaid,
repurchased, defeased or otherwise discharged on the date of
5
<PAGE> 12
the transaction giving rise to the need to calculated the Consolidated Leverage
Ratio, the aggregate amount of Indebtedness outstanding as of the end of the
Measurement Period shall be calculated on a pro forma basis as if such discharge
had occurred as of the end of the Measurement Period and the Consolidated Cash
Flow shall be calculated as if the Company or such Subsidiary had not earned the
interest income, if any, actually earned during the period of the most recent
two consecutive fiscal quarters for which financial statements have been made
publicly available but in no event ending more than 135 days prior to the date
of such determination in respect of cash or Cash Equivalents (excluding clause
(vi) thereof) used to repay, repurchase, defease or otherwise discharge such
Indebtedness.
"Consolidated Net Income" means, with respect to any Person for
any period, the aggregate of the Net Income of such Person and its Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) that is accounted for by the
equity method of accounting shall be included only to the extent of the amount
of dividends or distributions paid in cash to the referent Person or a Wholly
Owned Subsidiary thereof, (ii) the Net Income of any Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Subsidiary of such Net Income is not at the date of
determination permitted without any prior governmental approval (that has not
been obtained) or, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary or its stockholders, (iii)
the Net Income of any Person acquired in a pooling of interests transaction for
any period prior to the date of such acquisition shall be excluded, and (iv) the
cumulative effect of a change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of
any date, the sum of (i) the consolidated equity of the common equity holders of
such Person and without duplication its Subsidiaries as of such date plus (ii)
the respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred stock (other than Disqualified Stock)
that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock, less (a) all
write-ups (other than write-ups resulting from foreign currency transactions and
write-ups of tangible assets of a going concern business made within 12 months
after the acquisition of such business) subsequent to the date of this Indenture
in the book value of any asset owned by such Person or a consolidated Subsidiary
of such Person, (b) all Investments as of such date in unconsolidated
Subsidiaries and in Persons that are not Subsidiaries (except, in each case,
Permitted Investments), and (c) all unamortized debt discount and expense and
unamortized deferred charges as of such date, all of the foregoing determined in
accordance with GAAP.
"Continuing Directors" means, as of any date of determination,
any member of the board of directors of the Company who (i) was a member of the
board of directors on the date of this Indenture or (ii) was nominated for
election to the board of directors with the approval of at least a majority of
the Continuing Directors who were members of the board of directors at the time
of such nomination or election.
6
<PAGE> 13
"Corporate Trust Office of the Trustee" shall be at the address
of the Trustee specified in Section 11.2 hereof or such other address as to
which the Trustee may give notice to the Company.
"Debt" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or bankers' acceptances
or representing the balance deferred and unpaid of the purchase price of any
property or representing Hedging Obligations.
"Default" means any event that is or with the passage of time or
the giving of notice or both would be an Event of Default.
"Definitive Notes" means Notes that are in the form of Exhibit A
attached hereto (but without including the text referred to in footnote 1
thereto and the additional schedule referred to therein).
"Depository" means, with respect to the Notes issuable or issued
in whole or in part in global form, the Person specified in Section 2.3 hereof
as the Depository with respect to the Notes, until a successor shall have been
appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depository" shall mean or include such successor.
"Disqualified Stock" means any Capital Stock that, by its terms
(or by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Notes mature.
"Equity Interests" means Capital Stock and all warrants, options
or other rights to acquire Capital Stock (but excluding any debt security that
is convertible into, or exchangeable for, Capital Stock).
"Event of Default" has the meaning set forth in Section 6.1
hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Note" means any Series B Note issued in exchange for an
Original Note pursuant to the Exchange Offer or the Private Exchange Offer.
"Exchange Offer" means the offer by the Company to the Holders of
all outstanding Transfer Restricted Securities to exchange all such outstanding
Transfer Restricted Securities held by such Holders for Series B Notes, in an
aggregate principal amount equal to the aggregate principal amount of the
Transfer Restricted Securities tendered in such exchange offer by such Holders.
"Exchange Offer Registration Statement" means the registration
statement under the Securities Act relating to the Exchange Offer, including the
related prospectus.
7
<PAGE> 14
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries in existence on the date of this Indenture, until such amounts are
repaid.
"GAAP" means generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect on the date of this Indenture.
"Global Note" means a Note that contains the paragraph referred
to in footnote 1 and the additional schedule referred to in the form of Note
attached hereto as Exhibit A.
"Government Securities" means direct obligations of, or
obligations guaranteed by, the United States of America for the payment of which
guarantee or obligations the full faith and credit of the United States is
pledged.
"Guarantee" means the guarantee of each Guarantor set forth in
Article 10 and any additional guarantee of the Notes executed by any Subsidiary
of the Company.
"Guarantors" means any Subsidiary that executes a Guarantee in
accordance with the provisions of this Indenture, and their respective
successors and assigns.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest and currency rate swap agreements,
interest rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest or currency exchange rates (except that if any agreement relating to
such obligation provides for the netting of amounts payable by and to such
Person thereunder or if any such agreement provides for the simultaneous payment
of amounts by and to such Person, then in each such case, the amount of such
obligation shall be the net amount thereof).
"Holder" means a Person in whose name a Note is registered.
"Indebtedness" means, with respect to any Person, (i) any
indebtedness of such Person, whether or not contingent, in respect of borrowed
money or evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof) or bankers'
acceptances or representing Capital Lease Obligations or the balance deferred
and unpaid of the purchase price of any property or representing any Hedging
Obligations, except any such balance that constitutes an accrued expense or
trade payable, if and to the extent any of the foregoing indebtedness (other
than letters of credit and Hedging Obligations) would appear as a liability upon
a balance sheet of such Person prepared in accordance with GAAP, (ii) all
indebtedness of others secured by a Lien on any asset of such Person (whether or
not such indebtedness is assumed by such Person) in which case the amount of
such Indebtedness shall be deemed to be the lesser of (a) the amount of such
Indebtedness and (b) the fair market value of the asset that secures such
Indebtedness, (iii) Disqualified Stock of such Person, (iv) preferred stock of
any Subsidiary of such Person (other than Preferred Stock held by such Person or
any of its Subsidiaries) and (v) to the
8
<PAGE> 15
extent not otherwise included, the guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
directly or indirectly, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness by such Person of any indebtedness of any other Person. The
amount of any Indebtedness outstanding as of any date shall be (i) the accreted
value thereof, in the case of any Indebtedness that does not require current
payments of interest, and (ii) the principal amount thereof, together with any
interest thereon that is more than 30 days past due, in the case of any other
Indebtedness.
"Indenture" means this Indenture, as amended or supplemented from
time to time.
"Initial Purchaser" means BancBoston Securities Inc., as initial
purchaser in the Offering.
"Interest Payment Date" means, with respect to any installment of
interest on the Notes, the date specified in such Note as the fixed date on
which such installment of interest is due and payable.
"Interest Record Date" shall have the meaning set forth in the
form of the Note attached hereto as Exhibit A.
"Investments" means, with respect to any Person, all investments
by such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP;
provided that an acquisition of assets, Equity Interests or other securities by
the Company or any of its Subsidiaries for consideration consisting of common
equity securities of the Company shall not be deemed to be an Investment. If the
Company or any Subsidiary of the Company sells or otherwise disposes of any
Equity Interests of any direct or indirect Subsidiary of the Company such that,
after giving effect to any sale or disposition, such Person is no longer a
Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Equity Interests of such Subsidiary not sold or disposed of in an
amount determined as provided in Section 4.9 hereof.
"Issue Date" means the date of first issuance of the Notes under
this Indenture.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
9
<PAGE> 16
"Liquidated Damages" means all liquidated damages then owing
pursuant to the Registration Rights Agreement.
"Make-Whole Premium" means, with respect to a Note, an amount
equal to the excess of (a) the present value of the remaining interest,
Liquidated Damages, if any, and principal payments due on such Note as if such
Note was redeemed on July 31, 2002, computed using a discount rate equal to the
Treasury Rate plus 100 basis points, over (b) the outstanding Accreted Value of
such Note as of the date of determination. "Treasury Rate" is defined as the
yield to maturity at the time of the computation of United States Treasury
securities with a constant maturity (as compiled by and published in the most
recent Federal Reserve Statistical Release H.15(519)), which has become publicly
available at least two Business Days prior to the date fixed for prepayment (or,
if such Statistical Release is no longer published, any publicly available
source of similar market data) most nearly equal to the then remaining average
life of the Notes for which a Make-Whole Premium is being calculated; provided,
however, that if the average life of such Notes is not equal to the constant
maturity of the applicable United States Treasury securities for which a weekly
average yield is given, except that if the average life of such Notes is less
than one year, the weekly average yield on actually traded United State Treasury
securities adjusted to a constant maturity of one year shall be used.
"Moody's" means Moody's Investors Service, Inc. and its
successors.
"Net Income" means, with respect to any Person for any period,
the net income (loss) of such Person for such period, determined in accordance
with GAAP and before any reduction in respect of preferred stock dividends,
excluding, however, (i) any gain (but not loss), together with any related
provision for taxes on such gain (but not loss), realized in connection with (a)
any Asset Sale (including, without limitation, dispositions pursuant to sale and
leaseback transactions) or (b) the disposition of any securities by such Person
or any of its Subsidiaries or the extinguishment of any Indebtedness of such
Person or any of its Subsidiaries and (ii) any extraordinary or nonrecurring
gain (but not loss), together with any related provision for taxes on such
extraordinary or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions), any relocation expenses
incurred as a result thereof, any taxes paid or payable by the Company or any of
its Subsidiaries as a result thereof (after taking into account any available
tax credits or deductions and any tax sharing arrangements), amounts required to
be applied to the repayment of Indebtedness secured by a Lien on the asset or
assets that were the subject of such Asset Sale and any reserve for adjustment
in respect of the sale price of such asset or assets established in accordance
with GAAP.
"Note Custodian" means the Trustee, as custodian with respect to
the Notes in global form, or any successor entity thereto.
"Notes" means the Exchange Notes and the Original Notes.
10
<PAGE> 17
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the offering of the Series A Notes pursuant to
the Offering Memorandum.
"Offering Memorandum" means the Offering Memorandum of the
Company, dated July 27, 1998, relating to the Offering.
"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary or any Vice-President of such Person.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by the Chief Executive Officer or President and the Chief
Financial Officer or chief accounting officer of such Person.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
11.5 hereof and, to the extent required by the TIA, complies with TIA Section
314. The counsel may be an employee of or counsel to the Company, any of its
Subsidiaries or the Trustee.
"Original Notes" means the Series A Notes initially issued under
this Indenture prior to the issuance of Exchange Notes.
"Permitted Investments" means (i) any Investment in the Company
or in a Wholly Owned Subsidiary of the Company; (ii) any Investment in Cash
Equivalents; (iii) any Investment by the Company or any of its Subsidiaries in a
Person if, as a result of such Investment, (a) such Person becomes a Wholly
Owned Subsidiary of the Company or (b) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Wholly Owned Subsidiary of
the Company; (iv) any Investment existing on the date of this Indenture; (v) any
Investment made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with Section 4.14 hereof,
and (vi) other Investments in any Person (other than an Affiliate that is not a
Subsidiary or a Person that is controlled by an Affiliate that is not a
Subsidiary) engaged in a line of business that is similar, complementary or
ancillary to the business of the Company on the Issue Date, when taken together
with all other Investments made pursuant to this clause (vi) that are at the
time outstanding, not to exceed $3.0 million.
"Permitted Liens" means (i) Liens securing the Bank Credit
Facility; (ii) Liens in favor of the Company or any of its Subsidiaries; (iii)
Liens on property of a Person existing at the time such Person is merged into or
consolidated with the Company or any of its Subsidiaries, provided that such
11
<PAGE> 18
Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with the Company or any such Subsidiary; (iv) Liens
on property existing at the time of acquisition thereof by the Company or any of
its Subsidiaries, provided that such Liens were in existence prior to the
contemplation of such acquisition; (v) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (vi)
Liens to secure Indebtedness permitted by Section 4.8(iv)(A) hereof covering
only the assets acquired with such Indebtedness; (vii) Liens existing on the
date of this Indenture excluding Liens on Indebtedness to be repaid with the
proceeds of the Offering; (viii) Liens for taxes, assessments or governmental
charges or claims that are not yet delinquent or that are being contested in
good faith by appropriate proceedings promptly instituted and diligently
concluded, provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor; (ix) Liens
incurred in the ordinary course of business of the Company or any of its
Subsidiaries with respect to obligations that do not exceed $2.0 million at any
one time outstanding and that (a) are not incurred in connection with the
borrowing of money or the obtaining of advances or credit (other than trade
credit in the ordinary course of business) and (b) do not in the aggregate
materially detract from the value of the property or materially impair the use
thereof in the operation of business by the Company or any such Subsidiary; (x)
renewals or refundings of any Liens referred to in clauses (iii) through (ix)
above, provided that any such renewal or refunding does not extend to any assets
or secure any Indebtedness not securing or secured by the Liens being renewed or
refinanced; (xi) any Lien consisting of a deposit or pledge made in the ordinary
course of business in connection with, or to secure payment of, obligations
under worker's compensation, unemployment insurance or similar legislation; and
(xii) any Lien constituting a renewal, extension or replacement of a Lien
constituting a Permitted Lien, but only if (1) at the time such Lien is granted
and immediately after giving effect thereto, no Default would exist, (2) such
Lien is limited to all or a part of the property or asset that was subject to
the Lien so renewed, extended or replaced and to fixed improvements thereafter
erected on such property or asset, (3) the principal amount of the obligations
secured by such Lien does not exceed the principal amount of the obligation
secured by the Lien so renewed, extended or replaced, (4) the obligations
secured by such Lien bear interest at a rate per annum not exceeding the rate
borne by the obligations secured by the Lien so renewed, extended or replaced
except for any increase that is commercially reasonable at the time of such
increase and (5) the principal amount of the obligations has a final maturity
date of, and has a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of the obligation secured by the Lien so
renewed, extended or replaced.
"Permitted Refinancing Debt" means any Indebtedness of the
Company or any of its Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any such Subsidiary; provided that: (i) the
principal amount (or accreted value, if applicable) of such Permitted
Refinancing Debt does not exceed the principal amount (or accreted value, if
applicable) of the Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded (plus the amount of reasonable expenses incurred in
connection therewith); (ii) such Permitted Refinancing Debt has a final maturity
date no earlier than the final maturity date of, and has a Weighted Average Life
to Maturity equal to or greater than the Weighted Average Life to Maturity of,
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
12
<PAGE> 19
replaced, defeased or refunded is subordinated in right of payment to the Notes,
such Permitted Refinancing Debt has a final maturity date no earlier than the
final maturity date of, and is subordinated in right of payment to, the Notes on
terms at least as favorable to the Holders of Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred only by
the Company or the Subsidiary that is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, limited
liability company, limited liability partnership, joint venture, association,
joint-stock company, trust, unincorporated organization, government or any
agency or political subdivision thereof or any other entity.
"Private Exchange Offer" means a private exchange offer pursuant
to Section 2(a) of the Registration Rights Agreement.
"Principals" mean William W. Becker or Donald H. Sledge, their
lineal descendants and any trust, corporation, partnership, association, limited
liability company or other entity in which William W. Becker or Donald H. Sledge
and/or their lineal descendants hold at least 80% of the total, combined
outstanding voting power or similar controlling interest.
"Public Offering" means an underwritten primary public offering
of common stock (other than Disqualified Stock) of the Company registered under
the Securities Act (other than a public offering registered on Form S-8 under
the Securities Act).
"Registration Rights Agreement" means that certain Registration
Rights Agreement, dated as of the date of this Indenture, among the Company, the
Guarantors and the Initial Purchaser, as amended or supplemented from time to
time.
"Representative" means the Trustee and any other trustee, agent
or representative of holders of any Senior Debt.
"Responsible Officer" when used with respect to the Trustee,
means any officer within the corporate trust department of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above officers and
also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.
"Restricted Investment" means an Investment other than a
Permitted Investment.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
13
<PAGE> 20
"Series A Notes" means the Company's 13 7/8% Series A Senior
Discount Notes due 2005 to be issued pursuant to this Indenture.
"Series B Notes" means the Company's 13 7/8% Series B Senior
Discount Notes due 2005 to be issued pursuant to this Indenture in the Exchange
Offer.
"Senior Debt" of any Person means (i) any Indebtedness of such
Person incurred under the Bank Credit Facility and all Hedging Obligations with
respect thereto, (ii) any other Indebtedness permitted to be incurred by such
Person under the terms of this Indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it is subordinated in right of
payment to any Senior Debt of such Person, and (iii) all Obligations of such
Person with respect to the foregoing. Notwithstanding anything to the contrary
in the foregoing, Senior Debt will not include (a) any liability for federal,
state, local or other taxes owed or owing by such Person, (b) any Indebtedness
of such Person to any of its Subsidiaries or other Affiliates, (c) any trade
payables or (d) any Indebtedness that is incurred in violation of this
Indenture.
"Standard & Poor's" means Standard and Poor's, a division of The
McGraw-Hill Companies, and its successors.
"Subsidiary" means, with respect to any Person, (i) any
corporation, association or other business entity of which more than 50% of the
total voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of such Person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person and/or one or
more Subsidiaries of such Person (or any combination thereof).
"Telecommunications Business" means, when used in reference to
any Person, that such Person is engaged primarily in the business of (i)
transmitting, or providing services relating to the transmission of voice, video
or data through owned or leased transmission facilities, (ii) creating,
developing or marketing communications related network equipment, software and
other devices for use in a Telecommunications Business, or (iii) evaluating,
participating or pursuing any other activity or opportunity that is related to
those identified in (i) or (ii) above; provided that the determination of what
constitutes a Telecommunications Business shall be made in good faith by the
Board of the Company.
"TIA" means the Trust Indenture Act of 1939, as in effect on the
date this Indenture is qualified under the TIA.
"TNS" means TeleHub Network Services Corporation, an Illinois
corporation, substantially all of the assets of which include an ATM Network.
"TNS/TTC Transaction" means (i) a sale, assignment, transfer,
lease conveyance or other disposition of all of the capital stock of TNS or all
or substantially all of the assets comprising TNS's
14
<PAGE> 21
ATM Network, and/or (ii) a sale, assignment, transfer, lease, conveyance or
other disposition of all of the capital stock of TTC or all or substantially all
of the assets comprising TTC's business; provided that no asset of the Company
or any of its Subsidiaries shall have been or will be transferred or licensed to
the Subsidiary or business be divested by the Company other than on an arm's
length basis and in the ordinary course of business.
"Transfer Restricted Securities" has the meaning ascribed to the
term "Registrable Securities" in the Registration Rights Agreement.
"Trustee" means the party named as such above until a successor
replaces it in accordance with applicable provisions of this Indenture, and
thereafter means the successor serving hereunder.
"TTC" means TeleHub Technologies Corporation, a Nevada
corporation.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of
such Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person and one or more Wholly Owned Subsidiaries of such Person.
SECTION 1.2. Other Definitions
<TABLE>
<CAPTION>
Defined in
Term Section
------ -----------
<S> <C>
"Affiliate Transaction" 4.11
"Asset Sale Offer" 4.14
"Bankruptcy Law" 6.1
"Change of Control Offer" 4.15
"Change of Control Payment" 4.15
"Change of Control Payment Date" 4.15
"Covenant Defeasance" 8.3
"Custodian" 6.1
"DTC" 2.3
"Event of Default" 6.1
"Excess Proceeds" 4.14
"Funding Guarantor" 10.6
"incur" 4.8
</TABLE>
15
<PAGE> 22
<TABLE>
<S> <C>
"Legal Defeasance" 8.2
"Legal Holiday" 11.7
"Offer Amount" 3.9
"Offer Period" 3.9
"Paying Agent" 2.3
"Payment Default" 6.1
"Purchase Date" 3.9
"Registrar" 2.3
"Restricted Payments" 4.9
"Restricted Period" 2.6
"TNS/TTC Put Option Payment" 4.15
"TNS/TTC Put Option Offer" 4.15
"TNS/TTC Put Option Payment 4.15
Date"
</TABLE>
SECTION 1.3. Incorporation by Reference of Trust Indenture Act
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder of Notes;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes means the Company, any Guarantor, or any
successor obligor upon the Notes or the Guarantee.
All other terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule under
the TIA have the meanings so assigned to them.
SECTION 1.4. Rules of Construction
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
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<PAGE> 23
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the
plural include the singular;
(5) provisions apply to successive events and transactions; and
(6) references to sections of or rules under the Securities Act
or the Exchange Act shall be deemed to include substitute, replacement
or successor sections or rules adopted by the SEC from time to time.
ARTICLE 2
THE NOTES
SECTION 2.1. Form and Dating
The Original Notes, the notation thereon relating to the
Guarantee and the Trustee's certificate of authentication relating thereto shall
be substantially in the form of Exhibit A hereto, with such appropriate
insertions, substitutions and other variations as are required or permitted by
this Indenture. The Exchange Notes, the notation thereon relating to the
Guarantee and the Trustee's certificate of authentication relating thereto shall
be substantially in the form of Exhibit A hereto, with such appropriate
insertions, substitutions and other variations as are required or permitted by
this Indenture; provided, that Exchange Notes issued in the Exchange Offer shall
not bear the legend set forth in Exhibit A hereto as indicated by footnote 2;
provided, further, that Exchange Notes issued in both the Exchange Offer and the
Private Exchange Offer shall not refer to Liquidated Damages and shall not
include paragraph 19 of Exhibit A hereto. The Notes may have notations, legends
or endorsements required by this Indenture, law, stock exchange rule, depository
rule or usage. Any such notation, legend or endorsement shall be delivered in
writing to the Trustee by the Company. Each Note shall be dated the date of its
issuance and show the date of its authentication.
The terms and provisions contained in the Notes and the
Guarantee, annexed hereto as Exhibit A hereto, shall constitute, and are hereby
expressly made, a part of this Indenture, and the Company, the Guarantors and
the Trustee, by their execution and delivery of this Indenture, expressly agree
to such terms and provisions and to be bound thereby.
The Original Notes initially will be issued in global form,
substantially in the form of Exhibit A attached hereto (including the text set
forth in footnote 1 thereto and the additional schedule referred to therein) and
may be issued in definitive form, substantially in the form of Exhibit A hereto
(not including the text set forth in footnote 1 thereto and the additional
schedule referred to therein). The Original Notes initially will be deposited
with the Trustee, as Note Custodian. The Global Notes initially shall be
registered in the name of the Depository or the nominee of the Depository. A
Global Note shall represent such of the outstanding Notes as shall be specified
therein and shall provide that it shall represent the aggregate amount of
outstanding Notes from time to time
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endorsed thereon and that the aggregate amount of outstanding Notes represented
thereby may from time to time be reduced or increased, as appropriate, to
reflect exchanges and redemptions. Any endorsement of a Global Note to reflect
the amount of any increase or decrease in the amount of outstanding Notes
represented thereby shall be made by the Trustee, as Note Custodian, in
accordance with instructions given by the Holder thereof as required by Section
2.6 hereof.
SECTION 2.2. Execution and Authentication
One Officer of the Company shall sign the Notes for the Company
by manual or facsimile signature. Each Guarantor shall execute the Guarantee in
the manner set forth in Section 10.8.
If an Officer of the Company whose signature is on a Note no
longer holds that office at the time the Note is authenticated, the Note shall
nevertheless be valid.
Only such Notes as shall bear thereon a certificate of
authentication substantially in the form set forth in Exhibit A hereto, manually
executed by the Trustee, shall be entitled to the benefits of this Indenture or
be valid or obligatory for any purpose. Such certificate of authentication
executed by the Trustee upon any Note executed by the Company shall be
conclusive evidence that the Note so authenticated has been duly authenticated
and delivered hereunder.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Notes executed by the
Company to the Trustee for authentication, together with a request for the
authentication and delivery of such Notes signed by an Officer of the Company,
and the Trustee, in accordance with such request, shall authenticate and deliver
such Notes as provided in this Indenture.
The Trustee shall authenticate (i) Original Notes for original
issue in the aggregate principal amount at maturity not to exceed $125,000,000,
and (ii) Exchange Notes issued, either (x) in the Exchange Offer for the
Original Notes pursuant to the Exchange Offer Registration Statement filed with
the Commission from time to time, for issue only in exchange for a like
principal amount at maturity of Original Notes or (y) in the Private Exchange
Offer, for issue only in exchange for a like principal amount at maturity of
Original Notes, in each case, upon written order of the Company in the form of
an Officers' Certificate. The Officers' Certificate shall specify the amount of
Notes to be authenticated and the date on which the Notes are to be
authenticated, whether the Notes are to be Original Notes or Exchange Notes and
whether the Notes are to be Definitive Notes or Global Notes. Except as
contemplated by Section 2.7 hereof, the aggregate principal amount at maturity
of Notes outstanding at any time may not exceed $125,000,000. Notwithstanding
the foregoing, all Notes issued under this Indenture shall vote and consent
together on all matters as one class and no series of Notes will have the right
to vote or consent as a separate class on any matter.
The Notes shall be issuable in fully registered form only,
without coupons, in denominations of $1,000 stated principal amount at maturity
and any integral multiple thereof.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. Unless limited by the terms of such appointment,
an authenticating agent may
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authenticate Notes whenever the Trustee may do so. Each reference in this
Indenture to authentication by the Trustee includes authentication by such
agent. An authenticating agent has the same right as an Agent to deal with the
Company or an Affiliate of the Company. The Trustee shall not be liable for any
act or failure to act of the authenticating agent to perform any duty either
required herein or authorized herein to be performed by such person in
accordance with this Indenture. Each authenticating agent shall be acceptable to
the Company and otherwise comply in all respects with the eligibility
requirements of the Trustee contained in this Indenture.
SECTION 2.3. Registrar and Paying Agent
The Company shall maintain an office or agency where (a) Notes
may be presented for registration of transfer or for exchange ("Registrar"), (b)
Notes may be presented or surrendered for payment ("Paying Agent") and (c)
notices and demands to or upon the Company in respect of the Notes may be
served. The Registrar shall keep a register of the Notes and of their transfer
and exchange. The Company may appoint one or more co-registrars and one or more
additional paying agents. The term "Registrar" includes any co-registrar and the
term "Paying Agent" includes any additional paying agents. The Company may
change any Paying Agent or Registrar without notice to any Holder. The Company
shall notify the Trustee of the name and address of any Agent not a party to
this Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such and shall be entitled
to appropriate compensation in accordance with Section 7.7 hereof. The Company
or any of its Subsidiaries may act as Paying Agent or Registrar, except that for
purposes of payments on the Notes pursuant to Sections 4.14 and 4.15 hereof,
neither the Company nor any of its Affiliates may act as Paying Agent.
The Company shall enter into an appropriate agency agreement with
any Agent not a party to this Indenture, which shall incorporate the provisions
of the TIA. The agreement shall implement the provisions of this Indenture that
relate to such Agent. The Company initially appoints The Depository Trust
Company ("DTC") to act as Depository with respect to the Global Notes.
The Company initially appoints the Trustee to act as the
Registrar and Paying Agent and agent for service of notices and demands in
connection with the Notes.
SECTION 2.4. Paying Agent to Hold Assets in Trust
The Company shall require each Paying Agent other than the
Trustee to agree in writing that the Paying Agent will hold in trust for the
benefit of Holders or the Trustee all assets held by the Paying Agent for the
payment of principal of, premium, if any, or interest on, or Liquidated Damages
with respect to, the Notes (whether such assets have been distributed to it by
the Company or any other obligor on the Notes), and will notify the Trustee of
any Default by the Company or any other obligor on the Notes in making any such
payment. While any such Default continues, the Trustee may require a Paying
Agent to distribute all assets held by it to the Trustee and account for any
assets disbursed. The Company at any time may require a Paying Agent to pay all
assets held by it to the Trustee and account for any assets disbursed. Upon
payment over and accounting to the Trustee, the Paying Agent (if other than the
Company or any of its Subsidiaries) shall have no other liability
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for the assets. If either the Company or any of its Subsidiaries acts as Paying
Agent, it shall segregate and hold in a separate trust fund for the benefit of
the Holders all money held by it as Paying Agent.
SECTION 2.5. Holder Lists
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is
not the Registrar, the Company shall furnish to the Trustee as of each Interest
Record Date and at such other times as the Trustee may request in writing a list
in such form and as of such date as the Trustee may reasonably require of the
names and addresses of Holders, including the aggregate principal amount of
Notes held by each Holder.
SECTION 2.6. Transfer and Exchange
(a) Transfer and Exchange of Definitive Notes. When Definitive
Notes are presented to the Registrar with the request to register the transfer
of the Definitive Notes, or to exchange such Definitive Notes for an equal
principal amount of Definitive Notes of other authorized denominations, the
Registrar shall register the transfer or make the exchange as requested if its
requirements for such transactions are met; provided, however, that the
Definitive Notes presented or surrendered for registration of transfer or
exchange:
(i) shall be duly endorsed or accompanied by a written
instrument of transfer in form satisfactory to the Trustee and the
Registrar duly executed by the Holder thereof or by an attorney who is
duly authorized in writing to act on behalf of the Holder; and
(ii) shall, in the case of a Transfer Restricted Security,
be accompanied by the following additional information and documents, as
applicable:
(A) if such Transfer Restricted Securities are
being delivered to the Registrar by a Holder for registration in
the name of such Holder, without transfer, a certification from
such Holder to that effect (in substantially the form of Exhibit
B hereto); or
(B) if such Transfer Restricted Securities are
being transferred (1) to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act) in a transaction
meeting the requirements of Rule 144A under the Securities Act or
(2) pursuant to an exemption from registration in a transaction
meeting the requirements of Rule 144 under the Securities Act
(based upon an Opinion of Counsel if the Company so requests) or
(3) pursuant to an effective registration statement under the
Securities Act, a certification to that effect from such Holder
(in substantially the form of Exhibit B hereto); or
(C) if such Transfer Restricted Securities are
being transferred to an institutional "accredited investor,"
within the meaning of Rule 501(a)(1), (2), (3) or (7) under the
Securities Act pursuant to a private placement exemption from the
registration
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requirements of the Securities Act (based upon an Opinion of
Counsel if the Company so requests), a certification to that
effect from such Holder (in substantially the form of Exhibit B
hereto) and a certification from the applicable transferee (in
substantially the form of Exhibit C hereto);
(D) if such Transfer Restricted Securities are
being transferred outside the U.S. to a foreign person pursuant
to an exemption from registration in a transaction meeting the
requirements of Regulation S under the Securities Act (based on
an Opinion of Counsel if the Company so requests), certification
to that effect from such Holder (in substantially the form of
Exhibits B and D hereto); or
(E) if such Transfer Restricted Securities are
being transferred in reliance on another exemption from the
registration requirements of the Securities Act (based upon an
Opinion of Counsel if the Company so requests), a certification
to that effect from such Holder (in substantially the form of
Exhibit B hereto).
(b) Transfer of a Definitive Note for a Beneficial Interest in a
Global Note. A Definitive Note may not be exchanged for a beneficial interest in
a Global Note except upon satisfaction of the requirements set forth below. Upon
receipt by the Trustee of a Definitive Note, duly endorsed or accompanied by a
written instrument of transfer in form satisfactory to the Trustee duly executed
by the Holder thereof or by an attorney who is duly authorized in writing to act
on behalf of the Holder, together with:
(i) if such Definitive Note is being delivered to the
Trustee by a Holder, without transfer, to enable such Holder to obtain a
beneficial interest in a Global Note, a certification from such Holder
to that effect (in substantially the form of Exhibit B hereto); provided
that such Holder provides a certification that such Holder is otherwise
permitted to hold a beneficial interest in a Global Note;
(ii) if such Definitive Note is a Transfer Restricted
Security and is being transferred, certification, substantially in the
form of Exhibit B hereto, that either (A) such Definitive Note is being
transferred to a "qualified institutional buyer" (as defined in Rule
144A under the Securities Act) in a transaction meeting the requirements
of Rule 144A under the Securities Act, (B) to an institutional
"accredited investor," within the meaning of Rule 501(a)(1), (2), (3) or
(7) under the Securities Act pursuant to a private placement exemption
from the registration requirements of the Securities Act (based upon an
Opinion of Counsel if the Company so requests), provided that the
Trustee receives a certification from such transferee (in substantially
the form of Exhibit C hereto), or (C) to a foreign person outside the
U.S. pursuant to an exemption from registration in a transaction meeting
the requirements of Regulation S under the Securities Act (based upon an
Opinion of Counsel if the Company so requests), provided that the
Trustee receives a certification from such transferor (in substantially
the form of Exhibit D hereto); and
(iii) whether or not such Definitive Note is a Transfer
Restricted Security, written instructions directing the Trustee to make,
or directing the Note Custodian to make, an
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endorsement on the Global Note to reflect an increase in the aggregate
principal amount of the Notes represented by the Global Note;
then the Trustee shall cancel such Definitive Note in accordance with Section
2.11 hereof and cause, or direct the Note Custodian to cause, in accordance with
the standing instructions and procedures existing between the Depository and the
Note Custodian, the aggregate principal amount of Notes represented by the
Global Note to be increased accordingly. If no Global Notes are then
outstanding, the Company shall issue and, upon receipt of an authentication
order in accordance with Section 2.2 hereof, the Trustee shall authenticate a
new Global Note in the appropriate principal amount.
(c) Transfer and Exchange of Global Notes. The transfer and
exchange of Global Notes or beneficial interests therein shall be effected
through the Depository, in accordance with this Indenture and the procedures of
the Depository therefor, which shall include restrictions on transfer comparable
to those set forth herein to the extent required by the Securities Act.
(d) Transfer of a Beneficial Interest in a Global Note for a
Definitive Note.
(i) Any Person having a beneficial interest in a Global
Note may upon request exchange such beneficial interest for a Definitive
Note. Upon receipt by the Trustee of written instructions or such other
form of instructions as is customary for the Depository from the
Depository or its nominee on behalf of any Person having a beneficial
interest in a Global Note, and, in the case of a Transfer Restricted
Security, the following additional information and documents (all of
which may be submitted by facsimile):
(A) if such beneficial interest is being
transferred to the Person designated by the Depository as being
the beneficial owner, a certification from such Person to that
effect (in substantially the form of Exhibit B hereto); or
(B) if such beneficial interest is being
transferred (1) to a "qualified institutional buyer" (as defined
in Rule 144A under the Securities Act) in a transaction meeting
the requirements of Rule 144A under the Securities Act or (2)
pursuant to an exemption from registration in a transaction
meeting the requirements of Rule 144 under the Securities Act
(based upon an Opinion of Counsel if the Company so requests) or
(3) pursuant to an effective registration statement under the
Securities Act, a certification to that effect from the
transferor (in substantially the form of Exhibit B hereto); or
(C) if such beneficial interest is being
transferred to an institutional "accredited investor," within the
meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities
Act pursuant to a private placement exemption from the
registration requirements of the Securities Act (based upon an
Opinion of Counsel if the Company so requests), a certification
to that effect from such transferor (in substantially the form of
Exhibit B hereto) and a certification from the applicable
transferee (in substantially the form of Exhibit C hereto); or
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<PAGE> 29
(D) if such beneficial interest is being
transferred outside the U.S. to a foreign person pursuant to an
exemption from registration in a transaction meeting the
requirements of Regulation S under the Securities Act (based upon
an Opinion of Counsel if the Company so requests), certifications
to that effect from such transferor (in substantially the form of
Exhibits B and D hereto); or
(E) if such beneficial interest is being
transferred in reliance on another exemption from the
registration requirements of the Securities Act (based upon an
Opinion of Counsel if the Company so requests), a certification
to that effect from such transferor (in substantially the form of
Exhibit B hereto);
then the Trustee or the Note Custodian, at the direction of the Trustee,
shall, in accordance with the standing instructions and procedures
existing between the Depository and the Note Custodian, cause the
aggregate principal amount of Global Notes to be reduced accordingly
and, following such reduction, the Company shall execute and, upon
receipt of an authentication order in accordance with Section 2.2
hereof, the Trustee shall authenticate and deliver to the transferee a
Definitive Note in the appropriate principal amount.
(ii) Definitive Notes issued in exchange for a beneficial
interest in a Global Note pursuant to this Section 2.6(d) shall be
registered in such names and in such authorized denominations as the
Depository, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee. The Trustee shall
deliver such Definitive Notes to the Persons in whose names such Notes
are so registered.
(e) Restrictions on Transfer and Exchange of Global Notes.
Notwithstanding any other provisions of this Indenture (other than the
provisions set forth in subsection (f) of this Section 2.6), a Global Note may
not be transferred except as a whole by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.
(f) Until the later of (A) the 41st day after the Issue Date and
(B) the 41st day after the day on which the Notes are first offered to persons
other than distributors (as defined in Regulation S of the Securities Act) in
reliance on Regulation S of the Securities Act (the "Restricted Period"), an
owner of a beneficial interest in the Regulation S Global Note may not transfer
such interest to a transferee that is a U.S. person (other than a distributor)
or for the account or benefit of a U.S. person within the meaning of Rule 902
(o) of the Securities Act unless such transfer is made pursuant to the
registration of the Notes under the Securities Act or on an available exemption
from registration requirements under the Securities Act. Upon such an exchange
to a person, certification is required of the beneficial ownership of the Global
Notes by a non-U.S. person or a U.S. person who purchased the Global Notes in a
transaction that did not require registration under the Securities Act. During
the Restricted Period, all beneficial interests in the Regulation S Global Note
shall be transferred only through Cedel or Euroclear, either directly if the
transferor and transferee are participants in such systems, or indirectly
through organizations that are participants. During the
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Restricted Period, the Regulation S Global Note will be represented by a
temporary Regulation S Global Note.
(g) Authentication of Definitive Notes. If at any time:
(i) the Company notifies the Trustee in writing that the
Depository for the Notes is no longer willing or able to act as
Depository for the Global Notes and a successor Depository for the
Global Notes is not appointed by the Company within 90 days after
delivery of such notice; or
(ii) the Company, at its option, notifies the Trustee in
writing that it elects to cause the issuance of Definitive Notes under
this Indenture;
then the Company will execute, and the Trustee, upon receipt of an Officers'
Certificate requesting the authentication and delivery of Definitive Notes, will
authenticate and deliver Definitive Notes, in an aggregate principal amount
equal to the principal amount of the Global Notes, in exchange for such Global
Notes and registered in such names as the Depository shall instruct the Trustee
or the Company in writing.
(h) Legends.
(i) Except as permitted by the following paragraphs (iii)
and (iv), each Note certificate evidencing the Global Notes and the
Definitive Notes (and all Notes issued in exchange therefor or
substitution thereof) shall bear a legend in substantially the following
form until after the second anniversary of the later of the date of
original issuance of the Note and the last day on which the Company or
any Affiliate of the Company was the owner of such Note (or any
predecessor security):
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY
NOT BE OFFERED OR SOLD TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY
PERSON EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS
ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT), (B) IT IS AN "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES
ACT) WHO IS AN INSTITUTION (AN "INSTITUTIONAL ACCREDITED
INVESTOR"), OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS
NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER
THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT PRIOR TO THE DATE
WHICH IS TWO YEARS AFTER THE LATER OF THE DATE OF ORIGINAL
ISSUANCE OF THIS NOTE AND THE LAST DATE ON WHICH THE ISSUER OR
ANY AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS NOTE (THE
"RESALE RESTRICTION TERMINATION DATE") OFFER, SELL OR OTHERWISE
TRANSFER THIS NOTE, EXCEPT (A) TO THE ISSUER, (B) TO A PERSON
WHOM THE SELLER
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<PAGE> 31
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER PURCHASING
FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ANOTHER QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH THE RESALE PROVISIONS OF
RULE 144A UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO
THE TRUSTEE A WRITTEN CERTIFICATION CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
TRANSFER OF THIS NOTE, THE FORM OF WHICH LETTER CAN BE OBTAINED
FROM THE TRUSTEE (PROVIDED THAT CERTAIN HOLDERS SPECIFIED IN THE
INDENTURE MAY NOT TRANSFER THIS NOTE PURSUANT TO THIS CLAUSE (C)
PRIOR TO THE EXPIRATION OF THE "40-DAY RESTRICTED PERIOD" (WITHIN
THE MEANING OF RULE 903(c)(3) OF REGULATION S UNDER THE
SECURITIES ACT), (D) PURSUANT TO THE RESALE LIMITATIONS PROVIDED
BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT,
(F) OUTSIDE THE U.S. TO A FOREIGN PERSON IN A TRANSACTION MEETING
THE REQUIREMENTS OF REGULATION S UNDER THE SECURITIES ACT OR (G)
PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (BASED, IN THE CASE OF CLAUSES
(C), (D), (F) AND (G) ABOVE, UPON AN OPINION OF COUNSEL
REASONABLY ACCEPTABLE TO THE ISSUER IF THE ISSUER SO REQUESTS),
SUBJECT IN EACH OF THE FOREGOING CASES TO ANY REQUIREMENT OF LAW
THAT THE DISPOSITION OF ITS PROPERTY OR THE PROPERTY OF SUCH
ACCOUNT BE AT ALL TIMES WITHIN ITS CONTROL AND TO COMPLIANCE WITH
APPLICABLE STATE SECURITIES LAWS AND (3) AGREES THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IF THE PROPOSED
TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER
MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE
ISSUER SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION
AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. THE FOREGOING RESTRICTIONS ON RESALE WILL NOT
APPLY SUBSEQUENT TO THE RESALE RESTRICTION TERMINATION DATE.
(ii) Each Global Note shall also bear the following
legend:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS
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REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT
IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS
AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS
IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS MADE IN
ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE
REFERRED TO ON THE REVERSE HEREOF.
(iii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security represented by a
Global Note) pursuant to Rule 144 under the Securities Act or an
effective registration statement under the Securities Act:
(A) in the case of any Transfer Restricted Security
that is a Definitive Note, the Registrar shall permit the Holder
thereof to exchange such Transfer Restricted Security for a
Definitive Note that does not bear the legend set forth in clause
(i) above and rescind any restriction on the transfer of such
Transfer Restricted Security; and
(B) in the case of any Transfer Restricted Security
represented by a Global Note, such Transfer Restricted Security
shall not be required to bear the legend set forth in clause (i)
above if all other interests in such Global Note have been or are
concurrently being sold or transferred pursuant to Rule 144 under
the Securities Act or pursuant to an effective registration
statement under the Securities Act, but such Transfer Restricted
Security shall continue to be subject to the provisions of
Section 2.6(c) hereof; provided, however, that with respect to
any request for an exchange of a Transfer Restricted Security
that is represented by a Global Note for a Definitive Note that
does not bear a legend set forth in clause (i) above, which
request is made in reliance upon Rule 144, the Holder thereof
shall certify in writing to the Registrar that such request is
being made pursuant to Rule 144 (such certification to be
substantially in the form of Exhibit B hereto).
(iv) Notwithstanding the foregoing, upon consummation of
the Exchange Offer, the Company shall issue and, upon receipt of an
authentication order in accordance with Section 2.2 hereof, the Trustee
shall authenticate Series B Notes in exchange for Series A Notes
accepted for exchange in the Exchange Offer, which Series B Notes shall
not bear the legend set forth in clause (i) above, and the Registrar
shall rescind any restriction on the transfer of such Notes, in each
case unless the Holder of such Series A Notes is either (A) a
broker-dealer, (B) a Person participating in the distribution (within
the meaning of the Securities Act) of the Series A Notes or (C) a Person
who is an affiliate (as defined in Rule
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144A) of the Company. The Company shall identify to the Trustee such
Holders of the Notes in a written certification signed by an Officer
of the Company and, absent certification from the Company to such
effect, the Trustee shall assume that there are no such Holders.
(v) By its acceptance of any Note bearing the legend set
forth in Section 2.6(g)(i) hereof, each Holder of such a Note
acknowledges the restrictions on transfer of such Note set forth in this
Indenture and in such legend and agrees that it will transfer such Note
only as provided in this Indenture.
(vi) Each temporary Regulation S Global Note in effect
during the Restricted Period shall also bear the following legend:
BENEFICIAL OWNERSHIP INTERESTS IN THIS TEMPORARY REGULATION S
GLOBAL NOTE WILL NOT BE EXCHANGEABLE FOR INTERESTS IN THE RULE
144A GLOBAL NOTE OR THE PERMANENT REGULATION S GLOBAL NOTE OR ANY
OTHER NOTE REPRESENTING AN INTEREST IN THE NOTES REPRESENTED
HEREBY WHICH DO NOT CONTAIN A LEGEND CONTAINING RESTRICTIONS ON
TRANSFER, UNTIL THE EXPIRATION OF THE "40-DAY RESTRICTED PERIOD"
(WITHIN THE MEANING OF RULE 903(c)(3) OF REGULATION S UNDER THE
SECURITIES ACT) AND THEN ONLY UPON CERTIFICATION IN FORM
REASONABLY SATISFACTORY TO THE TRUSTEE THAT SUCH BENEFICIAL
INTERESTS ARE OWNED EITHER BY NON-U.S. PERSONS OR U.S. PERSONS
WHO PURCHASED SUCH INTERESTS IN A TRANSACTION THAT DID NOT
REQUIRE REGISTRATION UNDER THE SECURITIES ACT. DURING SUCH 40-DAY
RESTRICTED PERIOD, BENEFICIAL OWNERSHIP INTERESTS IN THIS
TEMPORARY REGULATION S GLOBAL NOTE MAY ONLY BE SOLD, PLEDGED OR
TRANSFERRED THROUGH THE EUROCLEAR SYSTEM OR CEDEL S.A. AND ONLY
(A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE
SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT,
(D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE
144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (E) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT.
DURING SUCH 40-DAY RESTRICTED PERIOD, INTERESTS IN THIS TEMPORARY
REGULATION S GLOBAL NOTE MAY NOT BE TRANSFERRED TO INSTITUTIONS
THAT ARE "ACCREDITED INVESTORS" AS DEFINED IN RULE 501(a)(1),
(2), (3), OR (7) UNDER THE SECURITIES ACT BUT NOT QUALIFIED
INSTITUTIONAL BUYERS AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT. HOLDERS OF INTERESTS IN THIS TEMPORARY REGULATION S GLOBAL
NOTE WILL NOTIFY ANY PURCHASER OF SUCH RESALE RESTRICTIONS, IF
THEN APPLICABLE.
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(i) Cancellation and/or Adjustment of Global Note. At such time
as all beneficial interests in a Global Note have either been exchanged for
Definitive Notes, redeemed, repurchased or canceled, such Global Note shall be
returned to or retained and canceled by the Trustee. At any time prior to such
cancellation, if any beneficial interest in a Global Note is exchanged for
Definitive Notes, redeemed, repurchased or canceled, the principal amount of
Notes represented by such Global Note shall be reduced and an endorsement shall
be made on such Global Note, by the Trustee or the Note Custodian, at the
direction of the Trustee to reflect such reduction.
(j) General Provisions with respect to Transfer and Exchanges.
(i) To permit registrations of transfers and exchanges,
the Company shall execute and the Trustee shall authenticate, pursuant
to the terms of this Indenture, Definitive Notes and Global Notes at the
Registrar's request.
(ii) No service charge shall be made to a Holder for any
registration of transfer or exchange, but the Company may require
payment of a sum sufficient to cover any transfer tax or similar
governmental charge payable in connection therewith (other than any such
transfer taxes or similar governmental charges payable upon exchange or
transfer pursuant to Sections 2.10, 3.7, 3.9, 4.14, 4.15 and 9.5
hereof).
(iii) Neither the Company nor the Registrar shall be
required to register the transfer or exchange of any Note selected for
redemption in whole or in part, except the unredeemed portion of any
Note being redeemed in part.
(iv) All Definitive Notes and Global Notes issued upon any
registration of transfer or exchange of Definitive Notes or Global Notes
shall be the valid obligations of the Company, evidencing the same debt,
and entitled to the same benefit under this Indenture as the Definitive
Notes or Global Notes surrendered upon such registration of transfer or
exchange.
(v) The Company shall not be required to issue, register
the transfer or exchange of Notes during a period beginning at the
opening of 15 days before the day of any selection of Notes for
redemption under Section 3.2 and ending at the close of business on the
day of selection.
(vi) Prior to due presentment for registration of transfer
of any Note, the Trustee, any Agent and the Company may deem and treat
the Person in whose name any Note is registered as the absolute owner of
such Note for the purpose of receiving payment of principal of, and
premium, interest and Liquidated Damages, if any, on such Note, and
neither the Trustee, any Agent nor the Company shall be affected by
notice to the contrary.
(vii) The Trustee shall authenticate Definitive Notes and
Global Notes in accordance with the provisions of Section 2.2 hereof.
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(viii) Neither the Company nor the Trustee shall be liable
for any delay by the Depository in identifying the beneficial owners of
the Notes and each such Person may conclusively rely on, and shall be
protected in relying on, instructions from the Depository for all
purposes (including with respect to the registration and delivery, and
the respective principal amounts, of any Notes to be issued).
(ix) Members of, or participants in, the Depository shall
have no rights under this Indenture with respect to any Global Note held
on their behalf by the Depository, or the Trustee as the Note Custodian,
or under the Global Note, and the Depository may be treated by the
Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner of the Global Note for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall (x) prevent the
Company, the Trustee or any agent of the Company or the Trustee from
giving effect to any written certification, proxy or other authorization
furnished by the Depository or (y) impair, as between the Depository and
members of, or participants in, the Depository, the operation of
customary practices governing the exercise of the rights of a Holder of
any Note.
SECTION 2.7. Replacement Notes
If any mutilated Note is surrendered to the Trustee, or the
Company and the Trustee receives evidence to its satisfaction of the
destruction, loss or theft of any Note, the Company shall issue and the Trustee,
upon the written order of the Company signed by an Officer of the Company, shall
authenticate a replacement Note if the Trustee's requirements are met. If
required by the Trustee or the Company, an indemnity bond must be supplied by
the Holder that is sufficient in the judgment of the Trustee and the Company to
protect the Company, the Trustee, any Agent or any authenticating agent from any
loss which any of them may suffer if a Note is replaced. The Company and the
Trustee may charge for their expenses in replacing a Note. If after the delivery
of such new Note, a bona fide purchaser of the original Note in lieu of which
such new Note was issued presents for payment such original Note, the Company
and the Trustee shall be entitled to recover such new Note from the person to
whom it was delivered or any transferee thereof, except a bona fide purchaser,
and shall be entitled to recover upon the security or indemnity provided
therefor to the extent of any loss, damage, cost or expense incurred by the
Company or the Trustee in connection therewith.
Every replacement Note is an additional obligation of the Company
and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
SECTION 2.8. Outstanding Notes
The Notes outstanding at any time are all the Notes authenticated
by the Trustee except for those canceled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee hereunder, and those described in this Section 2.8 as not outstanding.
Except as set forth in Section 2.9 hereof, a Note does not cease to be
outstanding because either of the Company or an Affiliate of the Company holds a
Note.
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If a Note is replaced pursuant to Section 2.7 hereof, it ceases
to be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under
Section 4.1 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) segregates and holds in trust, in accordance with this
Indenture, on a redemption date or maturity date, money sufficient to pay all
principal, interest, premium and Liquidated Damages, if any, payable on that
date with respect to the Notes (or the portion thereof to be redeemed or
maturing, as the case may be), then on and after that date such Notes (or
portions thereof) shall be deemed to be no longer outstanding and shall cease to
accrue interest.
SECTION 2.9. Treasury Notes
In determining whether the Holders of the required principal
amount of Notes have concurred in any direction, waiver, consent or notice,
Notes owned by the Company or any Affiliate of the Company shall be considered
as though not outstanding, except that for the purposes of determining whether
the Trustee shall be protected in relying on any such direction, waiver, consent
or notice, only Notes which a Responsible Officer of the Trustee actually knows
are so owned shall be so disregarded. The Company shall notify the Trustee, in
writing, when the Company or any of its Affiliates repurchases or otherwise
acquires Notes and the aggregate principal amount of such Notes so repurchased
or otherwise acquired.
SECTION 2.10. Temporary Notes
Until Definitive Notes are ready for delivery, the Company may
prepare and the Trustee, upon receipt of the written order of the Company signed
by an Officer of the Company, shall authenticate and deliver temporary Notes.
Temporary Notes shall be substantially in the form of Definitive Notes but may
have variations that the Company and the Trustee consider appropriate for
temporary Notes. Without unreasonable delay, the Company shall prepare and the
Trustee, upon receipt of the written order of the Company signed by an Officer
of the Company, shall authenticate and deliver, Definitive Notes in exchange for
temporary Notes.
Until such exchange, Holders of temporary Notes shall be entitled
to all of the rights, benefits and privileges of this Indenture.
SECTION 2.11. Cancellation
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee shall cancel all Notes surrendered for registration of transfer or
exchange, payment, replacement or cancellation, except as expressly permitted by
this Indenture. The Company may not issue new Notes to replace Notes that have
been redeemed or paid or that have been delivered to the Trustee for
cancellation. All canceled Notes held
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by the Trustee shall be destroyed and certification of their destruction
delivered to the Company unless by a written order delivered to the Trustee at
the time such canceled Notes are delivered to the Trustee, signed by one Officer
of the Company, the Company shall direct that canceled Notes be returned to it.
SECTION 2.12. Defaulted Interest
If the Company defaults in a payment of interest on the Notes, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, which date shall be at the earliest
practicable date but in all events at least five Business Days prior to the
payment date, in each case as provided in the Notes and in Section 4.1 hereof.
The Company shall, with the consent of the Trustee, fix or cause to be fixed
each such special record date and payment date. At least 15 days before the
special record date, the Company (or the Trustee, in the name of and at the
expense of the Company) shall mail to Holders a notice that states the special
record date, the related payment date and the amount of such interest to be
paid.
SECTION 2.13. CUSIP Number
The Company in issuing the Notes shall use a CUSIP number, and
the Trustee shall use the CUSIP number in notices of redemption or exchange as a
convenience to Holders; provided, however, that no representation is hereby
deemed to be made by the Trustee as to the correctness or accuracy of the CUSIP
number printed in the notice or on the certificates representing the Notes, and
that reliance may be placed only on the other identification numbers printed on
the certificates representing the Notes. The Company will promptly notify the
Trustee of any change in a CUSIP number.
SECTION 2.14. Deposit of Moneys
On each Interest Payment Date and each date on which payments in
respect of the Notes are required to be made pursuant to the terms of this
Indenture, the Company shall, not later than 11:00 a.m., New York City time,
deposit with the Paying Agent in immediately available funds money sufficient to
make any cash payments due on such date in a timely manner which permits the
Paying Agent to remit payment to the Holders on such date.
SECTION 2.15. Liquidated Damages Under Registration Rights Agreement
Under certain circumstances, the Company shall be obligated to
pay certain Liquidated Damages to the Holders, all as set forth in Section 2 of
the Registration Rights Agreement.
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ARTICLE 3
REDEMPTION AND OFFERS TO PURCHASE
SECTION 3.1. Notice to Trustee
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.7 hereof, it shall furnish to the Trustee, at
least 30 days but not more than 60 days before a redemption date (unless a
shorter notice period shall be satisfactory to the Trustee or a different notice
period is set forth in Section 3.7 hereof), an Officers' Certificate setting
forth (i) the Section of this Indenture pursuant to which the redemption shall
occur, (ii) the redemption date, (iii) the principal amount of Notes to be
redeemed and (iv) the redemption price.
If the Company is required to make an offer to purchase Notes
pursuant to the provisions of Sections 4.14 or 4.15 hereof, it shall furnish to
the Trustee, at least 30 days before the scheduled purchase date, an Officers'
Certificate setting forth (i) the Section of this Indenture pursuant to which
the offer to purchase shall occur, (ii) the terms of the offer, (iii) the
purchase price, (iv) the principal amount of the Notes to be purchased, and (v)
further setting forth a statement to the effect that (a) the Company or one of
its Subsidiaries has made an Asset Sale and there are Excess Proceeds
aggregating more than $2.0 million and the amount of such Excess Proceeds or (b)
a Change of Control has occurred, as applicable.
SECTION 3.2. Selection of Notes to Be Redeemed
If less than all of the Notes are to be redeemed at any time, the
Trustee shall, unless otherwise set forth herein, select the Notes to be
redeemed among the Holders of the Notes pro rata, by lot or in accordance with a
method which the Trustee considers to be fair and appropriate (and in such
manner as complies with applicable legal, principal national securities
exchanges and depositary requirements, if any). In the event of partial
redemption by lot, the particular Notes to be redeemed shall be selected, unless
otherwise provided herein, not less than 30 nor more than 60 days prior to the
redemption date by the Trustee from the outstanding Notes not previously called
for redemption.
The Trustee shall promptly notify the Company and the Registrar
(if other than the Trustee) in writing of the Notes selected for redemption and,
in the case of any Note selected for partial redemption, the principal amount at
maturity thereof to be redeemed. Notes and portions of them selected shall be in
face amounts of $1,000 or whole multiples of $1,000. Except as provided in the
preceding sentence, provisions of this Indenture that apply to Notes called for
redemption also apply to portions of Notes called for redemption.
In the event the Company is required to make an Asset Sale Offer
pursuant to Section 3.9 and Section 4.14, and the amount of the Net Proceeds
from the Asset Sale is not evenly divisible by $1,000, the Trustee shall
promptly refund to the Company the portion of such Excess Proceeds that is not
necessary to purchase the immediately lesser principal amount of Notes that is
so divisible.
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SECTION 3.3. Notice of Redemption
Subject to the provisions of Sections 3.9 and 4.15 hereof, at
least 30 days but not more than 60 days before a redemption date (unless a
different notice period is set forth in Section 3.7 hereof), the Company shall
mail by first class mail a notice of redemption to each Holder of Notes to be
redeemed at its registered address.
The notice shall identify the Notes to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price, separately stating the amount of any
accrued and unpaid interest and Liquidated Damages, if any, to be paid
in connection with the redemption;
(3) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the
redemption date, upon cancellation of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion will be issued;
(4) the name and address of the Paying Agent;
(5) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(6) that, unless the Company defaults in making such redemption
payment together with accrued and unpaid interest and Liquidated
Damages, if any, to the redemption date, interest ceases to accrue on
and after the redemption date on Notes or portions of Notes called for
redemption;
(7) the paragraph of the Notes or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed;
and
(8) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed
on the Notes; and
(9) the aggregate principal amount of Notes being redeemed.
At the Company's request, the Trustee shall give the notice of
redemption in the name of the Company and at its expense; provided, however,
that the Company shall deliver to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as provided
in the preceding paragraph.
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SECTION 3.4. Effect of Notice of Redemption
Once notice of redemption is mailed in accordance with Section
3.3 herein, Notes called for redemption become due and payable on the redemption
date at the redemption price stated in such notice. A notice of redemption may
not be conditional.
SECTION 3.5. Deposit of Redemption Price
Not later than 11:00 a.m. on or before the redemption date, the
Company shall deposit with the Trustee (to the extent not already held by the
Trustee) or with the Paying Agent money in immediately available funds
sufficient to pay the redemption price, together with accrued and unpaid
interest and Liquidated Damages, if any, to the redemption date on all Notes to
be redeemed. The Trustee or the Paying Agent shall return to the Company any
money deposited with the Trustee or the Paying Agent by the Company in excess of
the amount necessary to pay the redemption price of, and accrued and unpaid
interest and Liquidated Damages, if any, on, all Notes to be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption. If a Note is redeemed
on or after an Interest Record Date but on or prior to the related Interest
Payment Date, then any accrued and unpaid interest and Liquidated Damages, if
any, shall be paid to the Person in whose name such Note was registered at the
close of business on such record date. Upon surrender of a Note for redemption
in accordance with the notice given pursuant to Section 3.3 hereof, such Note
shall be purchased by the Company at the redemption price, together with accrued
and unpaid interest and Liquidated Damages, if any, to the redemption date. If
any Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest shall be paid on the unpaid principal, premium and
Liquidated Damages, if any, from the redemption date until such principal,
premium or Liquidated Damages, if any, is paid, and to the extent lawful on any
interest not paid on such unpaid principal, premium or Liquidated Damages, if
any, in each case at the rate provided in the Notes and in Section 4.1 hereof.
SECTION 3.6. Notes Redeemed in Part
Upon surrender and cancellation of a Note that is redeemed in
part only, the Company shall issue and the Trustee shall authenticate for the
Holder at the expense of the Company a new Note equal in principal amount to the
unredeemed portion of the surrendered and canceled original Note.
SECTION 3.7. Optional Redemption
The Notes are not redeemable at the Company's option prior to
July 31, 2002. Thereafter, the Notes shall be subject to redemption at the
option of the Company, in whole or in part, upon not less than 30 nor more than
60 days' notice, at the redemption prices (expressed as percentages of principal
amount at maturity) set forth below, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on July 31 of the years
indicated below:
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<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2002..................................... 106.9375%
2003..................................... 103.4688%
2004 and thereafter...................... 100.0000%
</TABLE>
Notwithstanding the foregoing, upon the occurrence of a TNS/TTC
Transaction, the Company may, at its option, by giving notice of redemption at
any time not less than 30 days nor more than 60 days prior to such transaction,
redeem all, but not less than all, of the outstanding Notes concurrently with
the consummation of such transaction at redemption price equal to, at any time
on or prior to July 31, 2002, 100% of the Accreted Value thereof, plus accrued
and unpaid interest and Liquidated Damages, if any, thereon, plus the applicable
Make-Whole Premium and after such date at the amount that would be payable to
the holders if the Company on such date were to redeem the Notes. On the date
fixed for redemption in connection with a TNS/TTC Transaction, the Company will
deposit with the Trustee sufficient monies to redeem in full the Notes and
deliver to the Trustee a solvency opinion (from a nationally recognized
investment bank with expertise in giving solvency opinions) dated the date of
the consummation of such transaction and stating that after giving effect to the
redemption of the Notes the Company will be solvent.
SECTION 3.8. Mandatory Redemption
The Company shall not be required to make any mandatory
redemption or sinking fund payments with respect to the Notes. However, as
described in Sections 3.9, 4.14 and 4.15, the Company may be obligated, under
certain circumstances, to make an offer to purchase (i) all outstanding Notes at
a redemption price of 101% of the aggregate principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the date
of repurchase (or, in the case of repurchase of Notes prior to July 31, 2002, at
a purchase price equal to 101% of the Accreted Value thereof, plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the date of purchase,
upon a Change of Control or a TNS/TTC Transaction; and (ii) outstanding Notes
with a portion of the Net Proceeds of Asset Sales at a redemption price of 101%
of the Accreted Value thereof, plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the date of purchase.
SECTION 3.9. Offer to Purchase by Application of Excess Proceeds
Any Asset Sale Offer pursuant to Section 4.14 shall remain open
for at least 30 and not more than 40 days, except to the extent that a longer
period is required by applicable law (the "Offer Period"). On a date within five
Business Days after the termination of the Offer Period (the "Purchase Date"),
the Company shall purchase the principal amount of Notes required to be
purchased pursuant to Section 4.14 hereof (the "Offer Amount") or, if less than
the Offer Amount has been tendered, all Notes tendered in response to the Asset
Sale Offer. Payment for any Notes so purchased shall be made in the same manner
as interest payments are made.
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The Company shall comply with any tender offer rules under the
Exchange Act which may then be applicable, including Rule 14e-1, in connection
with any offer required to be made by the Company to repurchase the Notes as a
result of an Asset Sale Offer or a TNS/TTC Put Option Offer. To the extent that
the provisions of any securities laws or regulations conflict with provisions of
this Section 3.9 or Section 4.15, the Company shall comply with the applicable
securities laws or regulations and shall not be deemed to have breached its
obligations hereunder by virtue thereof.
If the Purchase Date is on or after an Interest Record Date and
on or before the related Interest Payment Date, any accrued and unpaid interest
and Liquidated Damages, if any, shall be paid to the Person in whose name a Note
is registered at the close of business on such record date, and no additional
interest shall be payable to Holders who tender Notes pursuant to the Asset Sale
Offer.
Upon the commencement of an Asset Sale Offer, the Company shall
send, by first class mail, a notice to the Trustee and each of the Holders, with
a copy to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Asset Sale
Offer. The Asset Sale Offer shall be made to all Holders. The notice, which
shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this
Section 3.9 and Section 4.14 hereof and the length of time the Asset
Sale Offer shall remain open;
(b) the Offer Amount, the purchase price, separately stating the
amount of any accrued and unpaid interest and Liquidated Damages, if
any, and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall
continue to accrue interest;
(d) that, unless the Company defaults in making such payments,
any Note accepted for payment pursuant to the Asset Sale Offer shall
cease to accrue interest after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to
any Asset Sale Offer shall be required to surrender the Note, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Note completed, or transfer by book-entry transfer, to the Company, a
depositary, if appointed by the Company, or a Paying Agent at the
address specified in the notice at least three days before the Purchase
Date;
(f) that Holders shall be entitled to withdraw their election if
the Company, the depositary or the Paying Agent, as the case may be,
receives, not later than the expiration of the Offer Period, a telegram,
telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Note the Holder delivered for
purchase and a statement that such Holder is withdrawing such Holder's
election to have such Note purchased;
(g) that, if the aggregate principal amount of Notes surrendered
by the Holders exceeds the Offer Amount, the Trustee shall select the
Notes to be purchased on a pro rata
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<PAGE> 43
basis (with such adjustments as may be deemed appropriate by the Trustee
so that only Notes in denominations of $1,000, or integral multiples
thereof, shall be purchased); and
(h) that Holders whose Notes are purchased only in part shall be
issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered (or transferred by book-entry transfer).
On or before the Purchase Date, the Company shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale
Offer, or if less than the Offer Amount has been tendered, all Notes tendered,
and shall deliver to the Trustee an Officers' Certificate stating that such
Notes or portions thereof were accepted for payment by the Company in accordance
with the terms of this Section 3.9. The Company, the Depository or the Paying
Agent, as the case may be, shall promptly (but in any case not later than five
Business Days after the Purchase Date) mail or deliver to each tendering Holder
an amount equal to the purchase price of the Notes tendered by such Holder and
accepted by the Company for purchase plus accrued and unpaid interest and
Liquidated Damages, if any, and the Company shall promptly issue a new Note, and
the Trustee, upon written request from the Company shall authenticate and mail
or deliver such new Note to such Holder, in a principal amount equal to any
unpurchased portion of the Note surrendered. Any Note not so accepted shall be
promptly mailed or delivered by the Company to the Holder thereof. The Company
shall publicly announce the results of the Asset Sale Offer on the Purchase
Date.
Other than as specifically provided in this Section 3.9 and
Section 4.14, any purchase pursuant to this Section 3.9 shall be made pursuant
to the provisions of Sections 3.1 through 3.6 hereof.
No repurchase of Notes under this Section 3.9 shall be deemed to
be a redemption of Notes.
ARTICLE 4
COVENANTS
SECTION 4.1. Payment of Notes
The Company shall pay the principal (or, if prior to July 31,
2001, the Accreted Value), premium, if any, and interest, if any, on the Notes
on the dates and in the manner provided in the Notes and in this Indenture.
Principal (or, if prior to July 31, 2001, the Accreted Value), premium, if any,
and interest, if any, shall be considered paid on the date due if the Paying
Agent, other than the Company or any of its Subsidiaries or Affiliates, holds on
or before that date money deposited by the Company in immediately available
funds and designated for and sufficient to pay all principal, premium and
interest, if any, then due. The Company shall pay all Liquidated Damages, if
any, in the same manner on the dates and in the amounts set forth in the
Registration Rights Agreement. If any Liquidated Damages become payable, the
Company shall not later than three Business Days prior to
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<PAGE> 44
the date that any payment of Liquidated Damages is due (i) deliver an Officers'
Certificate to the Trustee setting forth the amount of Liquidated Damages
payable to Holders and (ii) instruct the Paying Agent to pay such amount of
Liquidated Damages to Holders entitled to receive such Liquidated Damages.
The Company shall pay interest (including post-petition interest
under any Bankruptcy Law) on overdue principal (or, if prior to July 31, 2001,
the Accreted Value), and premium, if any, from time to time on demand at the
rate equal to 1% per annum in excess of the then applicable interest or
accretion rate on the Notes to the extent lawful; the Company shall pay interest
(including post-petition interest under any Bankruptcy Law) on overdue
installments of interest and Liquidated Damages (without regard to any
applicable grace period) from time to time on demand at the same rate to the
extent lawful. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
SECTION 4.2. Maintenance of Office or Agency
The Company shall maintain in the Borough of Manhattan, the City
of New York, an office or agency (which may be an office of the Trustee,
Registrar or co-registrar) where Notes may be surrendered for registration of
transfer or exchange, where Notes may be presented or surrendered for payment
and where notices and demands to or upon the Company in respect of the Notes and
this Indenture may be served. The Company shall give prompt written notice to
the Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more
other offices or agencies where the Notes may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligations to maintain an office or agency in the
Borough of Manhattan, The City of New York for such purposes. The Company will
give prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or agency.
The Company hereby designates the office of the Trustee at State
Street Bank and Trust Company, N.A., 61 Broadway - Concourse Level - Corporate
Trust Window, New York, New York 10006, as one such office or agency of the
Company in accordance with Section 2.3.
SECTION 4.3. Reports
(a) Whether or not required by the rules and regulations of the
SEC, so long as any Notes are outstanding, the Company shall furnish to the
Holders of Notes (i) within 45 days following the end of each fiscal quarter and
90 days following the end of each fiscal year, respectively, all quarterly and
annual financial information that would be required to be contained in a filing
with the SEC on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a
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"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of operations of
the Company and its Subsidiaries and, with respect to the annual information
only, a report thereon by the Company's independent certified public accountants
and (ii) all current reports that would be required to be filed with the SEC on
Form 8-K if the Company were required to file such reports. In addition, whether
or not required by the rules and regulations of the SEC, the Company shall file
a copy of all such information and reports with the SEC for public availability
(unless the SEC will not accept such filing) and make such information available
to securities analysts and prospective investors upon request.
(b) Upon qualification of this Indenture under the TIA, the
Company shall also comply with the provisions of TIA Section 314(a).
(c) For so long as any Transfer Restricted Securities remain
outstanding, the Company shall furnish to all Holders or beneficial owners of
Notes and securities analysts and prospective investors of the Notes, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
SECTION 4.4. Compliance Certificate
(a) The Company shall deliver to the Trustee, within 90 days
after the end of each fiscal year, but not less often than annually, an
Officers' Certificate stating that a review of the activities of the Company and
its Subsidiaries during the preceding fiscal year has been made under the
supervision of the signing Officers with a view to determining whether each of
the Company and its Subsidiaries has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such Officer
signing such certificate, that to the best of his knowledge each of the Company
and its Subsidiaries has kept, observed, performed and fulfilled each and every
covenant contained in this Indenture, and is not in default in the performance
or observance of any of the terms, provisions and conditions hereof or thereof
(or, if a Default or Event of Default shall have occurred, describing all such
Defaults or Events of Default of which he may have knowledge and what action
each is taking or proposes to take with respect thereto).
(b) So long as not contrary to the then current recommendations
of the American Institute of Certified Public Accountants, the year-end
financial statements delivered pursuant to Section 4.3(a) above shall be
accompanied by a written statement of the Company's independent certified public
accountants (who shall be a firm of established national reputation reasonably
satisfactory to the Trustee) that in making the examination necessary for
certification of such financial statements nothing has come to their attention
which would lead them to believe that either the Company or any of its
Subsidiaries has violated any provisions of Article 4, 5 or 6 of this
Indenture or, if any such violation has occurred, specifying the nature and
period of existence thereof, it being understood that such accountants shall not
be liable directly or indirectly to any Person for any failure to obtain
knowledge of any such violation.
(c) The Company will, so long as any of the Notes are
outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware
of (i) any Default or Event of Default or (ii) any event of default under any
other mortgage, indenture or instrument referred to in Section 6.1(5), an
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Officers' Certificate specifying such Default, Event of Default or other event
of default and what action the Company is taking or proposes to take with
respect thereto.
SECTION 4.5. Taxes
The Company shall, and shall cause its Subsidiaries to, pay or
discharge prior to delinquency all material taxes, assessments, and governmental
levies except as contested in good faith and by appropriate proceedings and for
which adequate reserves, to the extent required under GAAP, have been taken.
SECTION 4.6. Stay, Extension and Usury Laws
The Company covenants (to the extent that it may lawfully do so)
that it shall not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay, extension or usury law
wherever enacted, now or at any time hereafter in force, which may affect the
covenants or the performance of this Indenture; and the Company (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage of
any such law, and covenants that it shall not, by resort to any such law,
hinder, delay or impede the execution of any power herein granted to the
Trustee, but shall suffer and permit the execution of every such power as though
no such law has been enacted.
SECTION 4.7. Company and Corporate Existence and Maintenance of Properties and
Insurance
Subject to Section 4.15 and Article 5 hereof, the Company shall
do or cause to be done all things necessary to preserve and keep in full force
and effect its corporate existence, and the corporate, partnership or other
existence of each of its Subsidiaries, in accordance with their respective
organizational documents (as the same may be amended from time to time) and its
(and its Subsidiaries') rights (charter and statutory), licenses and franchises;
provided, however, that the Company shall not be required to preserve any such
right, license or franchise, or the corporate, partnership or other existence of
any Subsidiary, if the Board of Directors of the Company shall determine in good
faith that the preservation thereof is no longer desirable in the conduct of the
business of the Company and its respective Subsidiaries taken as a whole and
that the loss thereof is not adverse in any material respect to the Holders.
The Company shall, and shall cause each of its Subsidiaries to,
maintain its properties in good working order and condition (subject to ordinary
wear and tear) and make all reasonably necessary repairs, renewals,
replacements, additions and improvements required for it to actively conduct and
carry on its business; provided, however, that nothing in this Section 4.7 shall
prevent the Company or any of its Subsidiaries from discontinuing the operation
and maintenance of any of its properties if such discontinuance is, in the good
faith judgment of the Board of Directors or other governing body of the Company
or the Subsidiary concerned, as the case may be, desirable in the conduct of its
businesses and is not adverse in any material respect to the Holders.
The Company shall maintain insurance against loss or damage of
the kinds that, in the good faith judgment of the Company, are adequate and
appropriate for the conduct of the business
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<PAGE> 47
of the Company and its Subsidiaries in a prudent manner, with reputable insurers
or with the government of the United States of America or an agency or
instrumentality thereof, in such amounts, with such deductibles, and by such
methods as shall be customary, in the good faith judgment of the Company, for
companies similarly situated in the industry.
SECTION 4.8. Limitation on the Incurrence of Indebtedness
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt); provided, however, that, so long as no Default or Event of Default has
occurred and is continuing, the Company and any Guarantor may incur Indebtedness
(including Acquired Debt) if the Consolidated Leverage Ratio is less than or
equal to 5.50 to 1.00.
The foregoing provisions will not apply to:
(i) the incurrence by the Company and the Guarantors of
Indebtedness pursuant to the Bank Credit Facility in an aggregate
principal amount not to exceed 80% of the Company's receivables that are
less than 60 days past due at any one time outstanding less any Net
Proceeds of Asset Sales applied to permanently reduce the Bank Credit
Facility pursuant to the provisions described under Section 4.14.
(ii) the incurrence by the Company and its Subsidiaries of
Existing Indebtedness;
(iii) the incurrence by the Company and its Subsidiaries of
Indebtedness represented by the Notes, the Guarantees, the Exchange
Notes and the Guarantees thereunder, and this Indenture;
(iv) the incurrence by the Company or any of its Subsidiaries of
Indebtedness (A) represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment used in the
business of the Company or such Subsidiary or (B) in connection with the
acquisition of assets or a new Subsidiary; provided, that the aggregate
principal amount (or accreted value, as applicable) of Indebtedness
incurred pursuant to clause (A) and (B) of this clause (iv), together
with any other outstanding Indebtedness incurred pursuant to this clause
(iv), does not exceed $10.0 million at any one time outstanding;
(v) the incurrence of intercompany Indebtedness between or among
the Company and any of its Wholly Owned Subsidiaries; provided that any
subsequent issuance or transfer of Equity Interests that results in any
such Indebtedness being held by a Person other than the Company or a
Wholly Owned Subsidiary of the Company, or any sale or other transfer of
any such Indebtedness to a Person that is neither the Company nor a
Wholly Owned Subsidiary of the Company, shall be deemed to constitute an
incurrence of such Indebtedness by the Company or such Subsidiary, as
the case may be;
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(vi) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Debt in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund
Indebtedness that was permitted by this Indenture to be incurred (other
than Indebtedness incurred under clause (i) above);
(vii) the incurrence by the Company or any of its Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or
hedging interest rate risk with respect to any floating rate
indebtedness that is permitted by the terms of this Indenture to be
outstanding; and
(viii) the incurrence by the Company of Indebtedness (other than
secured Acquired Debt) in an aggregate principal amount not to exceed
1.0 times the sum of the net cash proceeds received by the Company after
the date of this Indenture (other than in respect of Disqualified Stock)
in connection with any Public Offerings; provided that such Indebtedness
(i) does not mature prior to the maturity of the Notes, (ii) has a
Weighted Average Life to Maturity at greater than the Notes and (iii) is
made expressly subordinated to the Notes.
SECTION 4.9. Limitation on Restricted Payments
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, (i) declare or pay any dividend or make
any other payment or distribution on account of the Company's or any of its
Subsidiaries' Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation involving the Company), other than
dividends or distributions payable in Equity Interests (other than Disqualified
Stock) of the Company or dividends or distributions payable to the Company or
any Wholly Owned Subsidiary of the Company; (ii) purchase, redeem or otherwise
acquire or retire for value (including, without limitation, any payment in
connection with any merger or consolidation involving the Company) any Equity
Interests of the Company or any Subsidiary or other Affiliate of the Company
(other than any such Equity Interests owned by the Company or any Wholly Owned
Subsidiary of the Company); (iii) make any principal payment on, or purchase,
redeem, defease or otherwise acquire or retire for value, prior to a scheduled
mandatory sinking fund payment date or final maturity date, any Indebtedness
that is subordinated to the Notes or any Guarantee; or (iv) make any Restricted
Investment (all such payments and other actions set forth in clauses (i) through
(iv) above being collectively referred to as "Restricted Payments"), unless, at
the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter measurement
period, have been permitted by virtue of the Company's Consolidated
Leverage Ratio, to incur at least $1.00 of additional Indebtedness
pursuant to the Consolidated Leverage Ratio test set forth in Section
4.8 hereof; and
(c) such Restricted Payment, together with the aggregate of all
other Restricted Payments made by the Company and its Subsidiaries on or
after the Issue Date (excluding
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Restricted Payments permitted by clauses (ii), (iii) and (iv) of the
next succeeding paragraph), is less than the sum of (1) 50% of the
Consolidated Net Income of the Company for the period (taken as one
accounting period) from the beginning of the first fiscal quarter
commencing after the Issue Date to the end of the Company's most
recently ended fiscal quarter for which financial statements are
available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus (2) 100% of the aggregate net cash proceeds received by
the Company as capital contributions or from the issue or sale since the
Issue Date of Equity Interests of the Company or of debt securities of
the Company that have been converted into such Equity Interests (other
than (A) Equity Interests (or convertible debt securities) sold to a
Subsidiary of the Company, (B) Disqualified Stock or debt securities
that have been converted into Disqualified Stock and (C) any such net
cash proceeds utilized as the basis to incur Indebtedness under Section
4.8(viii) hereof, plus (3) to the extent that any Restricted Investment
that was made after the Issue Date is sold for cash or otherwise
liquidated or repaid for cash, the lesser of (A) the cash return of
capital with respect to such Restricted Investment (less the cost of
disposition, if any) and (B) the initial amount of such Restricted
Investments (but, in either case, only to the extent not included in
subclause (1) of this clause (c)).
The foregoing provisions will not prohibit: (i) the payment of
any dividend or other distribution within 60 days after the date of declaration
thereof, if at said date of declaration such payment would have complied with
the provisions of this Indenture; (ii) the redemption, repurchase, retirement or
other acquisition of any Equity Interests of the Company in exchange for, or out
of the proceeds of, the substantially concurrent sale (other than to a
Subsidiary of the Company) of other Equity Interests of the Company (other than
any Disqualified Stock); provided that the amount of any such net cash proceeds
that are utilized for any such redemption, repurchase, retirement or other
acquisition shall be excluded from clause (c) of the preceding paragraph; (iii)
the defeasance, redemption or repurchase of subordinated Indebtedness with the
net cash proceeds from an incurrence of Permitted Refinancing Debt or the
substantially concurrent sale (other than to a Subsidiary of the Company) of
Equity Interests of the Company (other than Disqualified Stock); provided that
the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement or other acquisition shall be excluded from
clause (c) of the preceding paragraph; (iv) the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests held by any member
of the Company's (or any of its Subsidiaries') management pursuant to any
management equity subscription agreement, stock option or similar employee
incentive arrangement; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed
$1.0 million in any twelve-month period; and provided, further, that such
repurchase, redemption or other acquisition or retirement may not include any
Equity Interests owned, directly or indirectly, by the Principals; and (v) any
dividend or distribution in the form of all of the capital stock of TNS or TTC
or all or substantially all of the assets comprising TNS's ATM Network or TTC's
business, provided that no assets of the Company or any of its other
Subsidiaries shall have been or will be transferred or licensed to the
Subsidiary being divested by the Company other than on an arm's-length basis and
in the ordinary course and provided, further, that concurrently with the
consummation of such transaction (A) the Company deposits with the Trustee
sufficient monies to redeem in full the Notes and concurrently therewith redeems
the Notes as set forth under Section 3.7 and Section 3.9 or if the Company has
prior to such transaction given holders
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of the Notes the right to put the Notes to the Company concurrently with the
consummation of such transaction, then the Company will only be obligated to
deposit with the Trustee sufficient monies to redeem in full those Notes as to
which Holders have demanded redemption and (B) the Company delivers to the
Trustee a solvency opinion (from a nationally recognized investment bank with
expertise in giving solvency opinions), dated the date of the consummation of
such transaction and stating that after giving effect to the redemption of the
Notes as described above the Company will be solvent, provided, that any such
dividend or distribution shall nonetheless be treated as a Restricted Payment
for all other purposes including without limitation under clause (c).
The amount of all Restricted Payments other than cash shall be
the fair market value (evidenced by an Officers' Certificate delivered to the
Trustee) on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred by the Company or such Subsidiary, as the case may
be, pursuant to the Restricted Payment. The fair market value of any non-cash
Restricted Payment in excess of $2.5 million shall be determined by the Board of
Directors of the Company whose resolution with respect thereto shall be
delivered to the Trustee, such determination to be based upon an opinion or
appraisal issued by an unaffiliated accounting, appraisal or investment banking
firm of national standing. Not later than the date of making any Restricted
Payment, the Company shall deliver to the Trustee an Officers' Certificate
stating that such Restricted Payment is permitted and setting forth the basis
upon which the calculations required by Section 4.9 hereof were computed, which
calculations may be based upon the Company's latest available financial
statements.
SECTION 4.10. Limitation on Liens
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien on any asset now owned or hereafter acquired, or any income or
profits therefrom, or assign or convey any right to receive income
therefrom, unless the Notes are directly secured equally and ratably with the
obligation or liability secured by such Lien and except Permitted Liens.
SECTION 4.11. Limitation on Transactions with Affiliates
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, make any payment to, or sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or purchase
any property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Subsidiary than those that would have been obtained
in a comparable transaction (as determined in good faith by the Board of
Directors) with an unrelated Person and (ii) the Company delivers to the Trustee
(a) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $1.0 million, a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $5.0 million, an opinion as to the fairness
to the Holders of such
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Affiliate Transaction from a financial point of view issued by an unaffiliated
accounting, appraisal or investment banking firm of national standing.
Notwithstanding the foregoing, transactions between or among the Company and its
Subsidiaries and Restricted Payments and Permitted Investments that are
permitted by the provisions under Section 4.9 hereof, in each case shall not be
deemed Affiliate Transactions.
SECTION 4.12. Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Subsidiary to (i)(a) pay dividends or make any other distributions to the
Company or any of its Subsidiaries on its (1) Capital Stock or (2) with respect
to any other interest or participation in, or measured by, its profits, or (b)
pay any indebtedness owed to the Company or any of its Subsidiaries, (ii) make
loans or advances to the Company or any of its Subsidiaries or (iii) transfer
any of its properties or assets to the Company or any of its Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of (a)
Existing Indebtedness as in effect on the date of this Indenture, (b) this
Indenture, the Notes and the Guarantees, (c) applicable law, (d) any instrument
governing Indebtedness or Capital Stock of a Person acquired by the Company or
any of its Subsidiaries as in effect at the time of such acquisition (except to
the extent such Indebtedness was incurred in connection with or in contemplation
of such acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted to be incurred by the terms of
this Indenture, (e) customary non-assignment provisions in leases entered into
in the ordinary course of business and consistent with past practices, (f)
purchase money obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (iii) above
on the property so acquired, or (g) Permitted Refinancing Debt, provided that
the restrictions contained in the agreements governing such Permitted
Refinancing Debt are no more restrictive taken as a whole than those contained
in the agreements governing the Indebtedness being refinanced.
SECTION 4.13. Business Activities
The Company shall not, directly or indirectly, engage in any
business other than the Telecommunications Business.
SECTION 4.14. Asset Sales
The Company shall not, and shall not permit any of its
Subsidiaries to, engage in an Asset Sale unless (i) the Company or such
Subsidiary, as the case may be, receives consideration at the time of such Asset
Sale at least equal to the fair market value (evidenced by a resolution of the
Board of Directors set forth in an Officers' Certificate delivered to the
Trustee) of the assets or Equity Interests issued or sold or otherwise disposed
of and (ii) at least 80% of the consideration therefor received by the Company
or such Subsidiary is in the form of Cash Equivalents; provided that the amount
of (a) any liabilities (as shown on the Company's or such Subsidiary's most
recent balance sheet) of the Company or any Subsidiary (other than contingent
liabilities and liabilities that are by their terms
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subordinated to the Notes) that are assumed by the transferee of any such assets
pursuant to a customary novation agreement that releases the Company or such
Subsidiary from further liability and (b) any notes or other obligations
received by the Company or such Subsidiary from such transferee that are
immediately converted by the Company or such Subsidiary into Cash Equivalents
(to the extent of the cash received) shall be deemed to be Cash Equivalents for
purposes of this provision.
Within 270 days after the receipt of any Net Proceeds from an
Asset Sale, the Company or such Subsidiary may apply such Net Proceeds (i) to
permanently reduce borrowings under the Bank Credit Facility (and to
correspondingly reduce commitments with respect thereto) or (ii) to make capital
expenditures or acquire long-term assets in the same line of business as the
Company was engaged immediately prior to such Asset Sale or, in the case of a
sale of accounts receivable in connection with any accounts receivable
financing, for working capital purposes. Pending the final application of any
such Net Proceeds, the Company may temporarily reduce senior indebtedness or
otherwise invest such Net Proceeds in any manner that is not prohibited by this
Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the first sentence of this paragraph will be deemed to constitute
"Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $2.0
million, the Company will be required to make an offer to all Holders of Notes
(an "Asset Sale Offer") to purchase the maximum principal amount at maturity of
Notes that may be purchased out of the Excess Proceeds, at an offer price in
cash in an amount equal to 101% of the principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages, if any, thereon (or, in the case of
an offer to purchase that would be consummated prior to July 31, 2001, at a
purchase price equal to 101% of the Accreted Value thereof, plus Liquidated
Damages thereon, if any) to the date of purchase, in accordance with the
procedures set forth in this Indenture. To the extent that the aggregate
Accreted Value of Notes tendered pursuant to an Asset Sale Offer is less than
the Excess Proceeds, the Company may use any remaining Excess Proceeds for
general corporate purposes (subject to the restrictions of this Indenture). If
the Accreted Value of Notes surrendered by Holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro
rata basis. Upon completion of such offer to purchase, the amount of Excess
Proceeds shall be reset at zero.
The Asset Sale Offer must be commenced within 30 days following
the Asset Sale that triggers the Company's obligation to make the Asset Sale
Offer and remain open for at least 30 and not more than 40 days (unless required
by applicable law). The Company shall comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to an Asset Sale Offer.
SECTION 4.15. Change of Control or a TNS/TTC Transaction
Upon the occurrence of a Change of Control, each Holder of Notes
will have the right to require the Company to repurchase all or any part (equal
to $1,000 face amount or an integral multiple thereof) of such Holder's Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the
date of repurchase (or, in the case of repurchase of Notes prior to July 31,
2001, at a purchase price equal to 101% of
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the Accreted Value thereof, plus Liquidated Damages thereon, if any, to the date
of repurchase) (the "Change of Control Payment"). A notice of a Change of
Control Offer shall be prepared by the Company and shall be mailed by the
Company with a copy to the Trustee or, at the option of the Company and at the
expense of the Company, by the Trustee within 10 days following a Change of
Control to each Holder of the Notes and such Change of Control Offer must remain
open for at least 30 and not more than 40 days (unless required by applicable
law).
Upon the occurrence of a TNS/TTC Transaction, if the Company does
not exercise its right to redeem the Notes concurrently with the consummation of
the TNS/TTC Transaction or has not made an offer to each Holder of Notes to
repurchase the Notes at the TNS/TTC Transaction Purchase Price concurrently with
the consummation of such transaction in a manner that otherwise complies with
the notice requirements and clauses (a) and (b) below of this sentence, the
Company shall be required to (a) deposit with the Trustee upon consummation of
such transaction sufficient monies to redeem in full the Notes, (b) delivered to
the Trustee with a solvency opinion (from a nationally recognized investment
bank with expertise in giving solvency opinions) dated the date of the
consummation of such transaction and stating that after giving effect to the
redemption of the Notes the Company will be solvent and (c) within ten days of
the consummation of such transaction make an offer (a "TNS/TTC Put Option
Offer") to each Holder to repurchase all or any part (equal to $1,000 face
amount or an integral multiple thereof) of each Holder's Notes at an offer price
(the "TNS/TTC Transaction Purchase Price") in cash equal to, at any time on or
prior to July 31, 2002, the Accreted Value thereof, plus accrued and unpaid
interest and Liquidated Damages, if any thereon, and the applicable Make-Whole
Premium and after such date the amount that would be payable to the Holders of
each Note to be purchased if the Company on such date were to redeem the Notes
(the "TNS/TTC Put Option Payment"). The Company shall have the right to make a
TNS/TTC Put Option Offer not more than 60 nor less than 30 days prior to the
consummation of the TNS/TTC Transaction.
The notice to each Holder of the Notes shall state: (1) that the Change
of Control Offer or the TNS/TTC Put Option Offer is being made pursuant to this
Section 4.15 and that all Notes tendered and not withdrawn will be accepted for
payment; (2) the purchase price, separately stating the amount of any accrued
and unpaid interest and Liquidated Damages, if any, and the purchase date, which
will be no earlier than 30 days nor later than 60 days from the date such notice
is mailed (the "Change of Control Payment Date" or the "TNS/TTC Put Option
Payment Date"); (3) that any Note not tendered will continue to accrue or
accrete interest, as the case may be; (4) that, unless the Company defaults in
the payment of the Change of Control Payment or the TNS/TTC Put Option Payment,
all Notes accepted for payment pursuant to the Change of Control Offer or the
TNS/TTC Put Option Offer will cease to accrue or accrete interest, as the case
may be, after the Change of Control Payment Date or the TNS/TTC Put Option
Payment Date; (5) that Holders electing to have any Notes purchased pursuant to
a Change of Control Offer or the TNS/TTC Put Option Offer will be required to
surrender the Notes, with the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Notes completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the third Business Day
preceding the Change of Control Payment Date or the TNS/TTC Put Option Payment
Date; (6) that Holders will be entitled to withdraw their election if the Paying
Agent receives, not later than the close of business on the second Business Day
preceding
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the Change of Control Payment Date or the TNS/TTC Put Option Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name of the
Holders, the principal amount at maturity of Notes delivered for purchase, and a
statement that such Holder is withdrawing his election to have such Notes
purchased; (7) that Holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount at maturity to the unpurchased
portion of the Notes surrendered, which unpurchased portion must be equal to
$1,000 in principal amount at maturity or an integral multiple thereof; and (8)
the circumstances and material facts regarding the Change of Control or TNS/TTC
Transaction (including but not limited to information with respect to the
historical consolidated financial information of the Company and pro forma
consolidated financial information of the Company after giving effect to the
Change of Control or TNS/TTC Transaction, information regarding the Person or
Persons acquiring control, to the extent reasonably available, and the business
plans of such Person or Persons with respect to the Company, to the extent
reasonably available). The Company shall comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the Notes in connection with a Change of Control or
TNS/TTC Transaction.
On the Change of Control Payment Date or the TNS/TTC Put Option
Payment Date, as the case may be, the Company shall, to the extent lawful, (i)
accept for payment Notes or portions thereof properly tendered pursuant to the
Change of Control Offer or TNS/TTC Put Option Offer, as the case may be, (ii)
deposit with the Paying Agent, unless previously deposited, an amount equal to
the Change of Control Payment or the TNS/TTC Put Option Payment, as the case may
be, in respect of all Notes or portions thereof so tendered and (iii) deliver or
cause to be delivered to the Trustee the Notes so accepted together with an
Officers' Certificate stating the aggregate principal amount of the Notes or
portions thereof being purchased by the Company. The Paying Agent shall promptly
mail to each Holder of Notes so tendered the Change of Control Payment or the
TNS/TTC Put Option Payment, as the case may be, for such Notes, and the Trustee
shall promptly authenticate and mail (or cause to be transferred by book-entry)
to each Holder a new Note equal in principal amount to any unpurchased portion
of the Notes surrendered, if any; provided that each such new Note will be in a
principal amount at maturity of $1,000 or an integral multiple thereof. Prior to
complying with the provisions of this Section 4.15, and in any event within 90
days following a Change of Control, the Company shall either repay all
outstanding Senior Debt of the Company or obtain the requisite consents, if any,
under all agreements governing outstanding Senior Debt of the Company to permit
the repurchase of Notes required by this Section 4.15. The Company shall
publicly announce the results of the Change of Control Offer or TNS/TTC Put
Option Offer, as the case may be, on or as soon as practicable after the Change
of Control Payment Date or the TNS/TTC Put Option Payment Date, as the case may
be.
Other than as specifically provided in this Section 4.15, any
purchase pursuant to this Section 4.15 shall be made pursuant to the provisions
of Section 3.1 through 3.6 hereof.
SECTION 4.16. Payments for Consent
The Company shall not, and shall not permit any of its
Subsidiaries or Affiliates to, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or
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otherwise, to any Holder of any Notes for or as an inducement to any consent,
waiver or amendment of any terms or provisions of this Indenture or the Notes
unless such consideration is offered to be paid or is paid to all Holders of the
Notes which so consent, waive or agree to an amendment in the time frame set
forth in the solicitation documents relating to such consent, waiver or
agreement.
SECTION 4.17. Limitation on Issuances and Sales of Capital Stock of Subsidiaries
The Company (i) shall not, and shall not permit any of its
Subsidiaries to, transfer, convey, sell or otherwise dispose of any Capital
Stock of any Subsidiary of the Company to any Person (other than the Company or
a Wholly Owned Subsidiary of the Company), unless (a) such transfer, conveyance,
sale or other disposition is of all of the Capital Stock of such Subsidiary
owned by the Company and its Subsidiaries and (b) such transaction is conducted
in accordance with Section 4.14 hereof and (ii) will not permit any Subsidiary
of the Company to issue any of its Equity Interests (other than, if required by
law, shares of its Capital Stock constituting directors' qualifying shares) to
any Person other than to the Company or a Wholly Owned Subsidiary of the
Company. The Company will not be obligated to comply with the provisions of this
Section 4.17 in connection with the sale, assignment, transfer, lease,
conveyance or other disposition of up to 50% of the capital stock of TNS
provided that no assets of the Company or any of its other Subsidiaries shall
have been or will be transferred or licensed to TNS other than on an
arm's-length basis and in the ordinary course and immediately after giving
effect to such transaction and any Restricted Payment made from the Net Proceeds
of such transaction (assuming for purposes of such definition that such
transaction was an Asset Sale) the Notes are rated investment grade by Moody's
or Standard & Poor's and the Company otherwise complies with Section 4.14
hereof.
ARTICLE 5
SUCCESSORS
SECTION 5.1. Limitation on Merger, Consolidation or Sale of Assets
(a) The Company shall not consolidate or merge with or into
(whether or not the Company is the surviving entity), or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its properties
or assets in one or more related transactions, to another corporation, Person or
entity, unless (i) the Company is the surviving entity or the entity or the
Person formed by or surviving any such consolidation or merger (if other than
the Company) or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia; (ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) or the entity or Person to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made assumes all the obligations of the Company under the Notes,
the Guarantees and this Indenture pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee; (iii) immediately after such
transaction, no Default or Event of Default exists; and (iv) except in the case
of a merger of the Company with or into a Wholly Owned Subsidiary of the
Company, the Company or the entity or Person formed by or
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surviving any such consolidation or merger (if other than the Company) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made (a) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction and (b) at the time of such transaction
and immediately after giving effect to such transaction, would be able to incur
at least $1.00 of additional Indebtedness pursuant to the Consolidated Leverage
Ratio test set forth in the first paragraph of Section 4.8 hereof. The Company
will not be obligated to comply with provisions of Section 5.1 in connection
with a TNS/TTC Transaction so long as concurrently with the consummation of such
transaction (i) the Company deposits with the Trustee sufficient monies to
redeem in full the Notes and concurrently therewith redeems the Notes as set
forth under Section 4.15 or if the Company has prior to such transaction given
Holders of the Notes the right to put the Notes to the Company concurrently with
the consummation of such transaction, then the Company will only be obligated to
deposit with the Trustee sufficient monies to redeem in full those Notes as to
which Holders have demanded redemption and (ii) the Company delivers to the
Trustee a solvency opinion (from a nationally recognized investment bank with
expertise in giving solvency opinions) dated the date of the consummation of
such transaction and stating that after giving effect to the redemption of the
Notes as described above the Company will be solvent.
(b) The Company shall deliver to the Trustee prior to the
consummation of any proposed transaction subject to the foregoing paragraph (a)
an Officers' Certificate to the foregoing effect and an Opinion of Counsel
stating that the proposed transaction and such supplemental indenture comply
with this Indenture. The Trustee shall be entitled to conclusively rely upon
such Officers' Certificate and Opinion of Counsel.
SECTION 5.2. Successor Person Substituted
Upon any consolidation or merger, or any sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the assets of the Company in accordance with Section 5.1 hereof, the successor
Person formed by such consolidation or into or with which the Company is merged
or to which such sale, assignment, transfer, lease, conveyance or other
disposition is made shall succeed to, and be substituted for (so that from and
after the date of such consolidation, merger, sale, lease, conveyance or other
disposition, the provisions of this Indenture referring to the "Company" shall
refer to or include instead the successor Person and not the Company), and may
exercise every right and power of the Company under this Indenture with the same
effect as if such successor Person had been named as the Company herein.
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ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.1. Events of Default
An "Event of Default" occurs if:
(1) the Company defaults in the payment of the principal of or
premium, if any, on any Note when the same becomes due and payable (upon
Stated Maturity, acceleration, optional redemption, required purchase
(whether pursuant to Sections 4.14 or 4.15 or otherwise) or otherwise);
or
(2) the Company defaults in the payment of an installment of
interest on, or Liquidated Damages, if any, with respect to, any of the
Notes, when the same becomes due and payable, which default continues
for a period of 30 days; or
(3) the Company fails to comply with the provisions described
under Sections 4.9, 4.14, 4.15, 4.17 or Article 5 hereof; or
(4) the Company or a Guarantor, if applicable, fails to comply
with any of its covenants or agreements contained in the Notes or this
Indenture (other than a default specified in clause (1), (2) or (3)
above) and such default continues for a period of 30 days after notice
of such default requiring the Company to remedy the same shall have been
given to the Company; or
(5) a default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its
Subsidiaries (or the payment of which is guaranteed by the Company or
any of its Subsidiaries), whether such Indebtedness or guarantee now
exists, or is created after the date of this Indenture, which default
(a) is caused by failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace
period provided in such Indebtedness (a "Payment Default") or (b)
results in the acceleration of such Indebtedness prior to its express
maturity and, in each case described in clauses (a) and (b) of this
subsection (5), the principal amount of any such Indebtedness, together
with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $2.0 million or more; or
(6) the Company or any of its Subsidiaries fails to pay one or
more final judgments against the Company or any Subsidiary in an
aggregate amount in excess of $2.0 million and either (a) any creditor
commences enforcement proceedings upon any such judgment or (b) such
judgments are not paid, discharged or stayed for a period of 60 days
from the entry thereof;
(7) any of the Guarantees of the Guarantors ceases to be in full
force and effect or any of such Guarantees is declared to be null and
void and unenforceable or any of such Guarantees
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is found to be invalid or any Guarantor, or any Person acting on behalf
of a Guarantor, denies such Guarantor's liability under its Guarantee
(other than by reason of release of a Guarantor in accordance with the
terms of this Indenture);
(8) the Company or any of its Subsidiaries, pursuant to or within
the meaning of any Bankruptcy Law:
(A) ommences a voluntary case or proceeding,
(B) consents to the entry of an order for relief against
it in an involuntary case or proceeding,
(C) consents to the appointment of a Custodian of it or
for all or substantially all of its property,
(D) makes a general assignment for the benefit of its
creditors, or
(E) admits in writing its inability to pay debts as the
same become due; or
(9) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Company or any of its
Subsidiaries in an involuntary case or proceeding,
(B) appoints a Custodian of the Company, or any of its
Subsidiaries, for all or substantially all of its property, or
(C) orders the liquidation of the Company or any of its
Subsidiaries,
and, in each case, the order or decree remains unstayed and in effect
for 60 days.
The term "Bankruptcy Law" means title 11, U.S. Code or any
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.
In the case of any Event of Default pursuant to the provisions of
this Section 6.1 occurring by reason of any willful action (or inaction) taken
(or not taken) by or on behalf of the Company or the Guarantors with the
intention of avoiding payment of the premium that the Company would have had to
pay if the Company then had elected to redeem the Notes pursuant to Section 3.7
hereof, an equivalent premium shall also become and be immediately due and
payable to the extent permitted by law upon the acceleration of the Notes. If an
Event of Default occurs prior to July 31, 2002, by reason of any willful action
(or inaction) taken (or not taken) by or on behalf of the Company or the
Guarantors with the intention of avoiding the prohibition on redemption of the
Notes
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prior to such date, then the premium specified in this Indenture shall
also become immediately due and payable to the extent permitted by law upon the
acceleration of the Notes.
SECTION 6.2. Acceleration
If an Event of Default (other than an Event of Default specified
in clauses (8) and (9) of Section 6.1) occurs and is continuing, the Trustee by
notice to the Company, or the Holders of at least 25% in principal amount at
maturity of the then outstanding Notes by written notice to the Company and the
Trustee may declare the Notes to be due and payable immediately. Upon such
declaration, the principal of (or, if prior to July 31, 2001, the Accreted Value
of), Liquidated Damages and accrued and unpaid interest on the Notes, if any,
shall be due and payable immediately. If an Event of Default specified in clause
(8) or (9) of Section 6.1 occurs, such amounts shall ipso facto become and be
immediately due and payable without any notice, declaration or other act on the
part of the Trustee or any Holder. The Holders of a majority in principal amount
of the then outstanding Notes by written notice to the Trustee may rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree and if all existing Events of Default (except nonpayment of
principal, interest or any other Obligation that has become due solely because
of the acceleration) have been cured or waived.
SECTION 6.3. Other Remedies
If an Event of Default occurs and is continuing, the Trustee may
and shall at the direction of the Holders of 25% in principal amount at maturity
of the then outstanding Notes pursue any available remedy (under this Indenture
or otherwise) to collect the payment of principal, premium, interest or
Liquidated Damages, if any, on the Notes or to enforce the performance of any
provision of the Notes, this Indenture or the Registration Rights Agreement.
The Trustee may maintain a proceeding even if it does not possess
any of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of Notes in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
SECTION 6.4. Waiver of Past Defaults
Subject to Sections 2.9, 6.7 and 9.2, Holders of a majority in
principal amount of the then outstanding Notes by notice to the Trustee may on
behalf of the Holders of all the Notes waive an existing Default or Event of
Default and its consequences, except a continuing Default or Event of Default in
the payment of the principal amount (or, on or prior to July 31, 2001, the
Accreted Value) or premium, interest or Liquidated Damages, if any, with respect
to any Note held by a non-consenting Holder. Upon any such waiver, such Default
shall cease to exist, and any Event of Default arising therefrom shall be deemed
to have been cured for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other Default or impair any right consequent
thereon.
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SECTION 6.5. Control by Majority
Subject to Section 2.9, the Holders of a majority in aggregate
principal amount at maturity of the then outstanding Notes may direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or exercising any trust or power conferred on it. Subject to Section
7.1, however, the Trustee may refuse to follow any direction that conflicts with
law or this Indenture that the Trustee determines may be unduly prejudicial to
the rights of other Holders of Notes, or that may involve the Trustee in
personal liability. Subject to the provisions of TIA Section315, the Trustee may
take any other action deemed proper by the Trustee which is not inconsistent
with such direction.
SECTION 6.6. Limitation on Suits
A Holder of Notes may pursue a remedy with respect to this
Indenture or the Notes only if:
(1) the Holder gives to the Trustee written notice of a
continuing Event of Default;
(2) the Holders of at least 25% in principal amount at maturity
of the then outstanding Notes make a written request to the Trustee to
pursue the remedy;
(3) such Holder or Holders offer and, if requested, provide to
the Trustee indemnity satisfactory to the Trustee in its sole discretion
against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the
provision of indemnity; and
(5) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Notes do not give the Trustee a
direction inconsistent with the request.
A Holder of Notes may not use this Indenture to prejudice the rights of another
Holder of Notes or to obtain a preference or priority over another Holder of
Notes.
SECTION 6.7. Rights of Holders to Receive Payment
Notwithstanding any other provision of this Indenture, the right
of any Holder of a Note to receive payment of principal, premium, interest, or
Liquidated Damages, if any, with respect to the Notes, on or after the
respective due dates expressed in the Note, or to bring suit for the enforcement
of any such payment on or after such respective dates, shall not be impaired or
affected without the consent of such Holder.
SECTION 6.8. Collection Suit by Trustee
If an Event of Default specified in Section 6.1(1) or (2) occurs
and is continuing, the Trustee is authorized to recover judgment in its own name
and as trustee of an express trust against
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the Company for the whole amount of principal, interest and Liquidated Damages,
if any, remaining unpaid on the Notes and interest on overdue principal and, to
the extent lawful, interest and such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
SECTION 6.9. Trustee May File Proofs of Claim
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of Notes allowed in any judicial proceedings relative to the Company (or
any other obligor upon the Notes), their creditors or their property and shall
be entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder of Notes to make such
payments to the Trustee, and in the event that the Trustee shall consent to the
making of such payments directly to the Holders of Notes, to pay to the Trustee
any amount due to it for the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, and any other amounts due
the Trustee under Section 7.7 hereof. To the extent that the payment of any such
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.7 hereof out
of the estate in any such proceeding, shall be denied for any reason, payment of
the same shall be secured by a Lien on, and shall be paid out of, any and all
distributions, dividends, money, securities and other properties which the
Holders of the Notes may be entitled to receive in such proceeding whether in
liquidation or under any plan of reorganization or arrangement or otherwise.
Nothing herein contained shall be deemed to authorize the Trustee to authorize
or consent to or accept or adopt on behalf of any Holder of Notes any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Holder of Notes in any such proceeding.
SECTION 6.10. Priorities
If the Trustee collects any money pursuant to this Article, it
shall pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due
under Section 7.7, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the
costs and expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the
Notes for principal, premium, interest and Liquidated Damages, if any,
ratably, without preference or priority of any kind, according to the
amounts due and payable on the Notes for principal and interest,
respectively; and
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Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any
payment to Holders of Notes.
SECTION 6.11. Undertaking for Costs
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder to
enforce the provisions of Section 6.7 hereof, or a suit by a Holder or Holders
of more than 10% in principal amount of the then outstanding Notes.
ARTICLE 7
TRUSTEE
SECTION 7.1. Duties of Trustee
(1) If a Default or an Event of Default known to the Trustee has
occurred and is continuing, the Trustee shall exercise such of the rights and
powers vested in it by this Indenture, and use the same degree of care and skill
in their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of its own affairs.
(2) Except during the continuance of a Default or an Event of
Default:
(A) The duties of the Trustee shall be determined solely
by the TIA or express provisions of this Indenture and the Trustee need
perform, and be liable for (as set forth herein), only those duties that
are specifically set forth in the TIA or this Indenture and no others,
and no implied covenants or obligations shall be read into this
Indenture against the Trustee.
(B) In the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements of
this Indenture.
(3) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that this paragraph does not limit the effect of paragraph
(2) of this Section 7.1.
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(4) Whether or not therein expressly so provided, every provision
of this Indenture that in any way relates to the Trustee is subject to
paragraphs (1), (2) and (3) of this Section 7.1.
(5) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any financial liability in the performance
of any of its duties hereunder, if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it.
(6) The Trustee shall not be liable for interest on any money or
assets received by it except as the Trustee may agree in writing with the
Company. Assets held in trust by the Trustee need not be segregated from other
funds except to the extent required by law.
SECTION 7.2. Rights of Trustee
(1) The Trustee may conclusively rely and shall be protected in
relying upon any resolution, document, Officers' Certificate or any other
certificate, statement, instrument, opinion, report, notice, request, consent,
order, bond or other document believed by it to be genuine and to have been
signed or presented by the proper Person. The Trustee need not investigate any
fact or matter stated in the document.
(2) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may
consult with counsel and the written advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection from liability,
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.
(3) The Trustee may act through its agent and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(4) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers conferred upon it by this Indenture.
(5) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(6) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders pursuant to the provisions of this Indenture
including, without limitation, the provisions of Section 6.5 hereof, unless such
Holders shall have offered to the Trustee security or indemnity reasonably
satisfactory to the Trustee against the costs, expenses and liabilities which
may be incurred by it in compliance with such request, order or direction.
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SECTION 7.3. Definitive Rights of Trustee
The Trustee in its individual or any other capacity may become
the owner or pledgee of Notes and may otherwise deal with the Company or an
Affiliate of the Company with the same rights it would have if it were not
Trustee. Any Agent may do the same with like rights. However, the Trustee is
subject to Sections 7.10 and 7.11.
SECTION 7.4. Trustee's Disclaimer
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture or the Notes, it
shall not be accountable for the Company's use of the proceeds from the Notes or
any money paid to the Company or upon the Company's direction under any
provision hereof, it shall not be responsible for the use or application of any
money received by any Paying Agent other than the Trustee and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.
SECTION 7.5. Notice of Defaults
If a Default or Event of Default occurs and is continuing and if
it is actually known to a Responsible Officer of the Trustee, the Trustee shall
mail to Holders of Notes a notice of the Default or Event of Default within 30
days after it occurs. Except in the case of a Default or Event of Default in
payment on any Note pursuant to Section 6.1(1) or (2), the Trustee may withhold
the notice if it in good faith determines that withholding the notice is in the
interests of Holders of Notes.
SECTION 7.6. Reports by Trustee to Holders
Within 60 days after each May 15 beginning with the May 15
following the date of this Indenture, the Trustee shall mail to Holders of Notes
a brief report dated as of such reporting date that complies with TIA Section
313(a) (but if no event described in TIA Section 313(a) has occurred within the
twelve months preceding the reporting date, no report need be transmitted). The
Trustee also shall comply with TIA Section 313(b)(2). The Trustee shall also
transmit by mail all reports as required by TIA Section 313(c).
Commencing at the time this Indenture is qualified under the TIA,
a copy of each report at the time of its mailing to Holders of Notes shall be
filed with the SEC and each stock exchange on which the Notes are listed. The
Company shall promptly notify the Trustee when the Notes are listed on any stock
exchange and the Trustee shall comply with TIA Section 313(d).
SECTION 7.7. Compensation and Indemnity
The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. Except as otherwise expressly provided herein, the
Company shall reimburse the Trustee promptly upon request for all reasonable
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disbursements, advances and expenses incurred or made by it in addition to the
compensation for its services in accordance with any provision of this Indenture
(including, without limitation, the reasonable compensation, expenses and
disbursements of its counsel and of all agents and other persons not regularly
in its employ (A) in connection with the preparation, execution and delivery of
this Indenture, any waiver or consent hereunder, any modification or termination
hereof, or any Event of Default or alleged Event of Default; (B) if an Event of
Default occurs, in connection with such Event of Default and collection,
bankruptcy, insolvency and other enforcement proceedings relating thereto; (C)
in connection with the administration of the Trustee's rights pursuant hereto;
or (D) in connection with any removal of the Trustee pursuant to subsection 7.8
hereof), except such disbursements, advances and expenses as may be attributable
to its negligence or bad faith.
The Company shall indemnify the Trustee against any and all
losses, liabilities, obligations, damages, penalties, judgments, actions, suits,
proceedings, reasonable costs and expenses (including reasonable fees and
disbursements of counsel) of any kind whatsoever which may be incurred by the
Trustee in connection with any investigative, administrative or judicial
proceeding (whether or not such indemnified party is designated a party to such
proceeding) arising out of or in connection with the acceptance or
administration of its duties under this Indenture; provided, however, that the
Company need not reimburse any expense or indemnify against any loss,
obligation, damage, penalty, judgment, action, suit, proceeding, reasonable cost
or expense (including reasonable fees and disbursements of counsel) of any kind
whatsoever which may be incurred by the Trustee in connection with any
investigative, administrative or judicial proceeding (whether or not such
indemnified party is designated a party to such proceeding) in which it is
determined that the Trustee acted with negligence, bad faith or willful
misconduct. The Trustee shall notify the Company promptly of any claim for which
it may seek indemnity. Failure by the Trustee to so notify the Company shall not
relieve the Company of its obligations hereunder. The Company shall defend the
claim and the Trustee shall cooperate in the defense. Unless otherwise set forth
herein, the Trustee may have separate counsel and the Company shall pay the
reasonable fees and expenses of such counsel. The Company need not pay for any
settlement made without its consent, which consent shall not be unreasonably
withheld.
The obligations of the Company under this Section 7.7 shall
survive the satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section 7.7,
the Trustee shall have a Lien prior to the Notes on all money or property held
or collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.1(7) or (8) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
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SECTION 7.8. Replacement of Trustee
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign at any time and be discharged from the
trust hereby created by so notifying the Company by at least 30 days' advance
written notice. The Holders of a majority in principal amount of the then
outstanding Notes may remove the Trustee by so notifying the Trustee and the
Company in writing. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(3) a Custodian or public officer takes charge of the Trustee or
its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office, the
Holders of a majority in principal amount of the then outstanding Notes may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.
If a successor Trustee does not take office within 60 days after
the retiring Trustee resigns or is removed, the retiring Trustee, the Company or
the Holders of at least 10% in principal amount of the then outstanding Notes
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee after written request by any Holder of Notes who
has been a Holder of Notes for at least six months fails to comply with Section
7.10, such Holder of Notes may, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor Trustee.
The Company shall give or cause to be given notice of each
resignation and each removal of the Trustee to all Holders in the manner
provided herein. Each notice shall include the name of the successor Trustee and
the address of its Corporate Trust Office.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of Notes. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee provided all sums owing
to the Trustee hereunder have been paid and subject to the Lien provided for in
Section 7.7. Notwithstanding replacement of the Trustee pursuant to this Section
7.8, the Company' obligations under Section 7.7 hereof shall continue for the
benefit of the retiring Trustee.
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No successor Trustee shall accept its appointment unless at the time of such
acceptance such successor Trustee shall be qualified and eligible under this
Article 7.
SECTION 7.9. Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee; provided that such successor is otherwise eligible hereunder.
SECTION 7.10. Eligibility; Disqualification
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America or of any state thereof or territory or of the District of Columbia
authorized under such laws to exercise corporate trustee power, shall be subject
to supervision or examination by Federal, state, territorial or District of
Columbia authority and shall have a combined capital and surplus of at least
$50,000,000 as set forth in its most recent published annual report of
condition.
If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section 7.10 it shall resign immediately
in the manner and with the effect specified in this Article 7. If the Trustee
has or shall acquire a conflicting interest within the meaning of the TIA, the
Trustee shall either eliminate such interest or resign, to the extent and in the
manner provided by, and subject to the provision of, the TIA and this Indenture.
This Indenture shall always have a Trustee who satisfies the
requirements of the TIA, including TIA Sections 310(a)(1) and 310(a)(5).
The Trustee is subject to TIA Section 310(b).
SECTION 7.11. Preferential Collection of Claims Against Company
The Trustee is subject to TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated
therein.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.1. Option to Effect Legal Defeasance or Covenant Defeasance
The Company may, at the option of the Board of Directors of the
Company, evidenced by a resolution set forth in an Officers' Certificate, at any
time, elect to have either Section 8.2 or 8.3 hereof be applied to all
outstanding Notes upon compliance with the conditions set forth below in this
Article 8.
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SECTION 8.2. Legal Defeasance and Discharge
Upon the Company's exercise under Section 8.1 hereof of the
option applicable to this Section 8.2, the Company shall, subject to the
satisfaction of the conditions set forth in Section 8.4 hereof, be deemed to
have been discharged from its obligations with respect to all outstanding Notes
on the date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes, which shall thereafter be deemed to be "outstanding" only for
the purposes of Section 8.5 hereof and the other Sections of this Indenture
referred to in (a) and (b) below, and to have satisfied all their other
obligations under such Notes and this Indenture (and the Trustee, promptly on
demand of and at the expense of the Company, shall execute proper instruments
prepared by the Company acknowledging the same), except for the following
provisions which shall survive until otherwise terminated or discharged
hereunder: (a) the rights of Holders of outstanding Notes to receive solely from
the trust fund described in Section 8.4 hereof, and as more fully set forth in
such Section, payments in respect of the principal, premium, interest and
Liquidated Damages, if any, on such Notes when such payments are due, (b) the
Company's obligations with respect to outstanding Notes under Article 2 and
Section 4.2 hereof, (c) the rights, powers, trusts, duties and immunities of the
Trustee hereunder and the Company's obligations in connection therewith and (d)
this Article 8. Subject to compliance with this Article 8, the Company may
exercise its option under this Section 8.2 notwithstanding the prior exercise of
its option under Section 8.3 hereof.
SECTION 8.3. Covenant Defeasance
Upon the Company's exercise under Section 8.1 hereof of the
option applicable to this Section 8.3, the Company shall, subject to the
satisfaction of the conditions set forth in Section 8.4 hereof, be released from
their obligations under the covenants contained in Section 4.3(a), 4.4, 4.5,
4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16 and 4.17 and Article 5
hereof with respect to the outstanding Notes on and after the date the
conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"),
and the Notes shall thereafter be deemed not "outstanding" for the purposes of
any direction, waiver, consent or declaration or act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "outstanding" for all other purposes hereunder (it being
understood that such Notes shall not be deemed outstanding for accounting
purposes). For this purpose, Covenant Defeasance means that, with respect to the
outstanding Notes, the Company may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
covenant, whether directly or indirectly, by reason of any reference elsewhere
herein or in any other document, and such omission to comply shall not
constitute a Default or Event of Default under Section 6.1 hereof, but, except
as specified above, the remainder of this Indenture and such Notes shall be
unaffected thereby. In addition, upon the Company's exercise under Section 8.1
hereof of the option applicable to this Section 8.3 hereof, subject to the
satisfaction of the conditions set forth in Section 8.4 hereof, Sections 6.1(3),
6.1(4), 6.1(5) and 6.1(6) and, with respect to any Subsidiary, 6.1(7), 6.1(8)
and 6.1(9) hereof shall not constitute Events of Default.
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SECTION 8.4. Conditions to Legal Defeasance or Covenant Defeasance
The following shall be the conditions to the application of
either Section 8.2 or 8.3 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant
Defeasance, as applicable:
(a) the Company must irrevocably deposit or cause to be deposited
with the Trustee, in trust, for the benefit of the Holders of the Notes,
cash in United States dollars, non-callable Government Securities which
through the scheduled payment of principal and interest in respect
thereof in accordance with their terms will provide, not later than one
day before the due date of any payment, cash, or a combination thereof,
in such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent certified public accountants expressed in
a written certification thereof delivered to the Trustee, to pay and
discharge, and which shall be applied by the Trustee to pay and
discharge, the principal, premium, interest and Liquidated Damages, if
any, on the outstanding Notes on the Stated Maturity or on the
applicable redemption date, as the case may be;
(b) in the case of an election under Section 8.2 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the
United States reasonably acceptable to the Trustee confirming that (A)
the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of this
Indenture, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such Opinion
of Counsel shall confirm that, the Holders of the outstanding Notes will
not recognize income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred;
(c) in the case of an election under Section 8.3 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the
United States reasonably acceptable to the Trustee confirming that the
Holders of the outstanding Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such Covenant Defeasance
and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such
Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Section 6.1(8) or
6.1(9) hereof are concerned, at any time in the period ending on the
91st day after the date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result
in a breach or violation of, or constitute a default under, any material
agreement or instrument (other than this Indenture) to which the Company
or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound;
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(f) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that after the 91st day following the deposit, the
trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with
the intent of preferring the Holders of Notes over any other creditors
of the Company with the intent of defeating, hindering, delaying or
defrauding creditors of the Company; and
(h) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
SECTION 8.5. Deposited Money and Government Securities to be Held in Trust;
Other Miscellaneous Provisions
Subject to Section 8.6 hereof, all money and non-callable
Government Securities (including the proceeds thereof) deposited with the
Trustee (or other qualifying trustee, collectively for purposes of this Section
8.5, the "Trustee") pursuant to Section 8.4 hereof in respect of the outstanding
Notes shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as Paying Agent) as the
Trustee may determine, to the Holders of such Notes of all sums due and to
become due thereon in respect of principal, premium, interest and Liquidated
Damages, if any, but such money and Government Securities need not be segregated
from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 8.4 hereof or the principal
and interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
SECTION 8.6. Repayment to Company
(a) Anything in this Article 8 to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon the
request of the Company any money or non-callable Government Securities held by
it as provided in Section 8.4 hereof which, in the opinion of a nationally
recognized firm of independent certified public accountants expressed in a
written certification thereof delivered to the Trustee (which may be the opinion
delivered under Section 8.4(a) hereof), are in excess of the amount thereof that
would then be required to be deposited to effect an equivalent Legal Defeasance
or Covenant Defeasance.
(b) Subject to any applicable abandoned property law, the Trustee
and the Paying Agent shall pay to the Company upon request in the form of an
Officers' Certificate any money held by them for the payment of principal,
premium, interest or Liquidated Damages, if any, that remains
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unclaimed for two years after such principal, interest, premium, if any, or
Liquidated Damages, if any, became due and payable, and, thereafter, Holders
entitled to the money must look to the Company for payment of such money as
creditors and all liability of the Trustee and the Paying Agent with respect to
such money shall cease.
SECTION 8.7. Reinstatement
If the Trustee or Paying Agent is unable to apply any United
States dollars or non-callable Government Securities in accordance with Section
8.2 or 8.3 hereof, as the case may be, by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's obligations under this Indenture and the
Notes shall be revived and reinstated as though no deposit had occurred pursuant
to Section 8.2 or 8.3 hereof until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.2 or 8.3 hereof,
as the case may; provided that, if the Company makes any payment of principal
of, premium, if any, or interest on any Note following the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Notes to receive such payment from the money held by the Trustee or Paying
Agent.
SECTION 8.8. Discharge of Liability on Securities; Defeasance
When (a) (i) the Company delivers to the Trustee all outstanding
Notes for cancellation (other than Notes which have been destroyed, lost or
stolen and which have been replaced or paid as provided in Section 2.7 and Notes
for whose payment money has theretofore been deposited in trust or segregated
and held in trust by the Company and thereafter repaid to the Company or
discharged from such trust) or (ii) all outstanding Notes have become due and
payable, whether at maturity or on a specified redemption date as a result of
the mailing of a notice of redemption pursuant to Article 3 hereof, (b) the
Company irrevocably deposits or causes to be deposited with the Trustee as trust
funds in trust solely for that purpose an amount of money sufficient to pay and
discharge at maturity or upon redemption all outstanding Notes, including
interest, premium and Liquidated Damages, if any, thereon, and the Company pays
or causes to be paid all other sums payable hereunder by the Company, (c) the
Company has delivered irrevocable instructions to the Trustee to apply the
deposited money toward the payment of the Notes at maturity or redemption, as
the case may be; and (d) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, stating that all conditions precedent
specified herein relating to the satisfaction and discharge of this Indenture
have been complied with; then this Indenture shall cease to be of further effect
except for (i) the provisions set forth in Article 2, Sections 4.1, 4.2, 6.7,
7.7, 8.5, 8.6 and 8.7 hereof and (ii) if the Notes have been called for
redemption and the redemption date has not occurred, the Company's obligation to
pay the redemption price on such redemption date. The Trustee shall acknowledge
satisfaction and discharge of this Indenture promptly on demand of the Company
after receipt from the Company of an Officers' Certificate and an Opinion of
Counsel and at the cost and expense of the Company.
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ARTICLE 9
AMENDMENTS
SECTION 9.1. Without Consent of Holders
The Company, the Guarantors and the Trustee may amend or
supplement this Indenture or the Notes without the consent of any Holder of
Notes:
(1) to cure any ambiguity, defect or inconsistency; provided that
such amendment or supplement does not adversely affect the rights of any
Holder;
(2) to comply with Article 5;
(3) to provide for uncertificated Notes in addition to or in
place of certificated Notes;
(4) to provide for the assumption of the Company's and the
Guarantor's obligations to Holders of the Notes in the case of a merger
or consolidation;
(5) to provide security for the Notes;
(6) to add Guarantees with respect to the Notes;
(7) to make any change that would provide any additional rights
or benefits to the Holders of the Notes or that does not adversely
affect the legal rights hereunder of any Holder of the Notes; or
(8) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA.
Upon the request of the Company, accompanied by a resolution of
the Board of Directors of the Company, authorizing the execution of any such
supplemental indenture or amendment, and upon receipt by the Trustee of the
documents described in Section 9.6 hereof required or requested by the Trustee,
the Trustee shall join with the Company in the execution of any supplemental
indenture or amendment authorized or permitted by the terms of this Indenture
and to make any further appropriate agreements and stipulations which may be
therein contained, but the Trustee shall not be obligated to enter into such
supplemental indenture or amendment which affects its own rights, duties or
immunities under this Indenture or otherwise.
SECTION 9.2. With Consent of Holders
Except as otherwise provided herein, the Company and the Trustee
may amend or supplement this Indenture or the Notes with the written consent of
the Holders of at least a majority in principal amount at maturity of the then
outstanding Notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for the Notes).
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Upon the request of the Company, accompanied by a resolution of
the Board of Directors of the Company authorizing the execution of any such
supplemental indenture or amendment, and upon the filing with the Trustee of
evidence satisfactory to the Trustee of the consent of the Holders of Notes as
aforesaid, and upon receipt by the Trustee of the documents described in Section
9.6 hereof, the Trustee shall join with the Company in the execution of such
supplemental indenture or amendment unless such supplemental indenture or
amendment affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise, in which case the Trustee may in its discretion, but
shall not be obligated to, enter into such supplemental indenture.
It shall not be necessary for the consent of the Holders under
this Section 9.2 to approve the particular form of any proposed supplemental
indenture or amendment, but it shall be sufficient if such consent approves the
substance thereof.
After a supplemental indenture or amendment under this Section
becomes effective, the Company shall mail to the Holders of each Note affected
thereby a notice briefly describing the amendment or waiver. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such supplemental indenture, amendment
or waiver. Subject to Sections 6.4 and 6.7 hereof, the Holders of a majority in
principal amount at maturity of the Notes then outstanding may waive compliance
in a particular instance by the Company with any provision of this Indenture or
the Notes. However, without the consent of each Holder of Notes affected, an
amendment or waiver under this Section may not (with respect to any Notes held
by a non-consenting Holder of Notes):
(1) reduce the principal amount at maturity of Notes whose
Holders must consent to an amendment, supplement or waiver;
(2) reduce the rate of or change the time for payment of interest
or Liquidated Damages, if any, including default interest, on any Note
or change or have the effect of changing the definition of Accreted
Value;
(3) reduce the principal of or change the fixed maturity of any
Note or alter the provisions with respect to the redemption of the Notes
(other than provisions relating to Sections 4.14 and 4.15) or reduce the
prices at which the Company shall offer to purchase such Notes pursuant
to Sections 3.9, 4.14 or 4.15 hereof;
(4) make any Note payable in money other than that stated in the
Note;
(5) make any change in Section 6.4 or 6.7 hereof or in this
sentence of this Section 9.2;
(6) waive a Default or Event of Default in the payment of
principal or Accreted Value of or premium, interest or Liquidated
Damages, if any, on the Notes (other than a Default in the payment of an
amount due as a result of an acceleration if the Holders of Notes
rescind such acceleration pursuant to Section 6.2);
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(7) waive a redemption payment with respect to any Note (other
than a payment required under Section 4.14 or 4.15); or
(8) release any Guarantor from any of its obligations under its
Guarantee or this Indenture otherwise than in accordance with the terms
of this Indenture.
SECTION 9.3. Compliance with Trust Indenture Act
If at the time of an amendment to this Indenture or the Notes,
this Indenture shall be qualified under the TIA, every amendment to this
Indenture or the Notes shall be set forth in a supplemental indenture that
complies with the TIA as then in effect.
SECTION 9.4. Revocation and Effect of Consents
Until a supplemental indenture, an amendment or waiver becomes
effective, a consent to it by a Holder of a Note is a continuing consent by the
Holder and every subsequent Holder of a Note or portion of a Note that evidences
the same debt as the consenting Holder's Note, even if notation of the consent
is not made on any Note. Subject to the following paragraph, any such Holder or
subsequent Holder may revoke the consent as to such Holder's Note or portion of
such Note by notice to the Trustee or the Company received before the date
specified in any solicitation or waiver. Subject to Section 9.2 hereof, a
supplemental indenture, amendment or waiver becomes effective in accordance with
its terms and thereafter binds every Holder of Notes.
The Company may fix a record date for determining which Holders
must consent to such supplemental indenture, amendment or waiver or action
permitted by Section 6.5. If the Company fixes a record date, the record date
shall be fixed at the later of (i) 30 days prior to the first solicitation of
such consent or the date of the most recent list of Holders furnished to the
Trustee prior to such solicitation pursuant to Section 2.5, or (ii) such other
date as the Company shall designate.
SECTION 9.5. Notation on or Exchange of Notes
The Trustee may place an appropriate notation about a
supplemental indenture, amendment or waiver on any Note thereafter
authenticated. The Company in exchange for all Notes may issue and the Trustee
shall authenticate new Notes that reflect the amendment or waiver.
Failure to make the appropriate notation or issue a new Note
shall not affect the validity and effect of such amendment or waiver.
SECTION 9.6. Trustee to Sign Amendments, etc.
The Trustee shall sign any amendment or supplemental indenture
authorized pursuant to this Article 9 if the amendment does not adversely affect
the rights, duties, liabilities or immunities of the Trustee. If it does, the
Trustee may, but need not, sign it. In signing or refusing to sign such
amendment or supplemental indenture, the Trustee shall be entitled to receive,
if requested, an indemnity reasonably satisfactory to it and to receive and,
subject to Section 7.1, shall be fully
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protected in relying upon, an Officers' Certificate and an Opinion of Counsel as
conclusive evidence that such amendment or supplemental indenture is authorized
or permitted by this Indenture, that it is not inconsistent herewith or
therewith, and that it will be valid and binding upon the Company in accordance
with its terms. The Company may not sign an amendment or supplemental indenture
until the Board of Directors of the Company approves it.
ARTICLE 10
GUARANTEES
SECTION 10.1. Unconditional Guarantee
Each Guarantor hereby unconditionally, jointly and severally,
guarantees (such guarantee to be referred to herein as the "Guarantee") to each
Holder of a Note authenticated and delivered by the Trustee and to the Trustee
and its successors and assigns, the Notes or the Obligations of the Company
hereunder or thereunder, that: (i) the principal of and interest on the Notes
will be promptly paid in full when due, subject to any applicable grace period,
whether at maturity, by acceleration or otherwise and interest on the overdue
principal, if any, and interest on any interest, to the extent lawful, of the
Notes and all other obligations of the Company to the Holders or the Trustee
hereunder or thereunder will be promptly paid in full or performed, all in
accordance with the terms hereof and thereof; and (ii) in case of any extension
of time of payment or renewal of any Notes or of any such other obligations, the
same will be promptly paid in full when due or performed in accordance with the
terms of the extension or renewal, subject to any applicable grace period,
whether at stated maturity, by acceleration or otherwise, subject, however, in
the case of clauses (i) and (ii) above, to the limitations set forth in Section
10.5. Each Guarantor hereby agrees that its obligations hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability of the
Notes or this Indenture, the absence of any action to enforce the same, any
waiver or consent by any Holder of the Notes with respect to any provisions
hereof or thereof, the recovery of any judgment against the Company, any action
to enforce the same or any other circumstance which might otherwise constitute a
legal or equitable discharge or defense of a guarantor. Each Guarantor hereby
waives diligence, presentment, demand of payment, filing of claims with a court
in the event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all demands whatsoever
and covenants that this Guarantee will not be discharged except by complete
performance of the obligations contained in the Notes, this Indenture and in
this Guarantee. If any Noteholder or the Trustee is required by any court or
otherwise to return to the Company, any Guarantor, or any custodian, trustee,
liquidator or other similar official acting in relation to the Company or any
Guarantor, any amount paid by the Company or any Guarantor to the Trustee or
such Noteholder, this Guarantee, to the extent theretofore discharged, shall be
reinstated in full force and effect. Each Guarantor further agrees that, as
between each Guarantor, on the one hand, and the Holders and the Trustee, on the
other hand, (x) the maturity of the obligations guaranteed hereby may be
accelerated as provided in Article 6 for the purposes of this Guarantee,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby, and (y) in the
event of any acceleration of such obligations as
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provided in Article 6, such obligations (whether or not due and payable) shall
forthwith become due and payable by each Guarantor for the purpose of this
Guarantee.
SECTION 10.2. Severability
In case any provision of this Guarantee shall be invalid, illegal
or unenforceable, the validity, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
SECTION 10.3. Release of a Guarantor
Upon (a) the sale or other disposition (whether by merger, stock
purchase, asset sale or otherwise) of a Guarantor (or all or substantially all
its assets) to an entity which is not a Subsidiary of the Company or (b) a sale
or other disposition of all of the Capital Stock of any Guarantor, and which
sale or disposition is otherwise in compliance with Section 4.14 hereof and the
other terms of this Indenture, then such Guarantor or the entity acquiring such
assets, as applicable, shall be deemed released from all obligations under this
Article 10 without any further action required on the part of the Trustee or any
Holder.
The Trustee shall execute and deliver an appropriate instrument
furnished to it evidencing such release upon receipt of a request by the Company
accompanied by an Officers' Certificate and Opinion of Counsel certifying as to
the compliance with this Section 10.3. Any Guarantor not so released remains
liable for the full amount of principal of and interest on the Notes as provided
in this Article 10.
SECTION 10.4. Limitation of Guarantor's Liability
Each Guarantor and by its acceptance hereof each Holder hereby
confirms that it is the intention of all such parties that the guarantee by such
Guarantor pursuant to its Guarantee not constitute a fraudulent transfer or
conveyance for purposes of the Bankruptcy Law, the Uniform Fraudulent Conveyance
Act, the Uniform Fraudulent Transfer Act or any similar Federal or state law. To
effectuate the foregoing intention, the Holders and such Guarantor hereby
irrevocably agree that the obligations of such Guarantor under the Guarantee
shall be limited to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities of such Guarantor (including, but not limited
to, the Guarantor Senior Indebtedness of such Guarantor) and after giving effect
to any collections from or payments made by or on behalf of any other Guarantor
in respect of the obligations of such other Guarantor under its Guarantee or
pursuant to Section 10.6, result in the obligations of such Guarantor under the
Guarantee not constituting such fraudulent transfer or conveyance.
SECTION 10.5. Guarantors May Consolidate, etc., on Certain Terms
(a) Nothing contained in this Indenture or in any of the Notes
shall prevent any consolidation or merger of a Guarantor with or into the
Company or another Guarantor or shall prevent any sale of assets or conveyance
of the property of a Guarantor as an entirety or substantially
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as an entirety, to the Company or another Guarantor. Upon any such
consolidation, merger, sale or conveyance, the Guarantee given by such Guarantor
shall no longer have any force or effect.
(b) Except as set forth in Articles 4 and 5 hereof, nothing
contained in this Indenture or in any of the Notes shall prevent any
consolidation or merger of a Guarantor with or into a corporation or
corporations other than the Company or another Guarantor (whether or not
affiliated with the Guarantor) or shall prevent any sale of assets or conveyance
of the property of a Guarantor as an entirety or substantially as an entirety,
to a corporation or corporations other than the Company or another Guarantor
(whether or not affiliated with the Guarantor); provided, however, that, subject
to Sections 10.3 and 10.5(a), immediately after such transaction, and giving
effect thereto such transaction does not (a) violate any covenants set forth
herein or (b) results in a Default or Event of Default under this Indenture that
is continuing.
SECTION 10.6. Contribution
In order to provide for just and equitable contribution among the
Guarantors, the Guarantors agree, inter se, that in the event any payment or
distribution is made by any Guarantor (a "Funding Guarantor") under the
Guarantee, such Funding Guarantor shall be entitled to a contribution from all
other Guarantors in a pro rata amount based on the Adjusted Net Assets of each
Guarantor (including the Funding Guarantor) for all payments of damages and
expenses incurred by that Funding Guarantor in discharging the Company's
obligations with respect to the Notes or any other Guarantor's obligations with
respect to the Guarantee. "Adjusted Net Assets" of such Guarantor at any date
shall mean the lesser of the amount by which (x) the fair value of the property
of such Guarantor exceeds the total amount of liabilities, including, without
limitation, contingent liabilities (after giving effect to all other fixed and
contingent liabilities incurred or assumed on such date, but excluding
liabilities under the Guarantee, of such Guarantor at such date and (y) the
present fair salable value of the assets of such Guarantor at such date exceeds
the amount that will be required to pay the probable liability of such Guarantor
on its debts including, without limitation, Guarantor Senior Debt (after giving
effect to all other fixed and contingent liabilities incurred or assumed on such
date and after giving effect to any collection from any Subsidiary of such
Guaran tee), excluding debt in respect of the Guarantee of such Guarantor, as
they become absolute and matured.
SECTION 10.7. Waiver of Subrogation
Until all Guarantee Obligations are paid in full, each Guarantor
hereby irrevocably waives any claim or other rights which it may now or
hereafter acquire against the Company that arise from the existence, payment,
performance or enforcement of such Guarantor's obligations under the Guarantee
and this Indenture, including, without limitation, any right of subrogation,
reimbursement, exoneration, indemnification, and any right to participate in any
claim or remedy of any Holder of Notes against the Company, whether or not such
claim, remedy or right arises in equity, or under contract, statute or common
law, including, without limitation, the right to take or receive from the
Company, directly or indirectly, in cash or other property or by set-off or in
any other manner, payment or Note on account of such claim or other rights. If
any amount shall be paid to any Guarantor in violation of the preceding sentence
and the Notes shall not have been paid in full, such
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<PAGE> 78
amount shall have been deemed to have been paid to such Guarantor for the
benefit of, and held in trust for the benefit of, the Holders of the Notes, and
shall forthwith be paid to the Trustee for the benefit of such Holders to be
credited and applied upon the Notes, whether matured or unmatured, in accordance
with the terms of this Indenture. Each Guarantor acknowledges that it will
receive direct and indirect benefits from the financing arrangements
contemplated by this Indenture and that the waiver set forth in this Section
10.7 is knowingly made in contemplation of such benefits.
SECTION 10.8. Execution of Guarantee
To evidence their guarantee to the Noteholders set forth in this
Article 10, the Guarantors hereby agree to execute the Guarantee in
substantially the form included in Exhibit A, which shall be endorsed on each
Note ordered to be authenticated and delivered by the Trustee. Each Guarantor
hereby agrees that its Guarantee set forth in this Article 10 shall remain in
full force and effect notwithstanding any failure to endorse on each Note a
notation of such Guarantee. Each such Guarantee shall be signed on behalf of
each Guarantor by one officer (who shall have been duly authorized by all
requisite corporate actions) prior to the authentication of the Note on which it
is endorsed, and the delivery of such Note by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of such
Guarantee on behalf of such Guarantor. Such signature upon the Guarantee may be
by manual or facsimile signature of such officer and may be imprinted or
otherwise reproduced on the Guarantee, and in case any such officer who shall
have signed the Guarantee shall cease to be such officer before the Note on
which such Guarantee is endorsed shall have been authenticated and delivered by
the Trustee or disposed of by the Company, such Note nevertheless may be
authenticated and delivered or disposed of as though the person who signed the
Guarantee had not ceased to be such officer of the Guarantor.
SECTION 10.9. Waiver of Stay, Extension or Usury Laws
Each Guarantor covenants (to the extent that it may lawfully do
so) that it will not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law or any
usury law or other law that would prohibit or forgive each such Guarantor from
performing its Guarantee as contemplated herein, wherever enacted, now or at any
time hereafter in force, or which may affect the covenants or the performance of
this Indenture; and (to the extent that it may lawfully do so) each such
Guarantor hereby expressly waives all benefit or advantage of any such law, and
covenants that it will not hinder, delay or impede the execution of any power
herein granted to the Trustee, but will suffer and permit the execution of every
such power as though no such law had been enacted.
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<PAGE> 79
ARTICLE 11
MISCELLANEOUS
SECTION 11.1. Trust Indenture Act Controls
If any provision of this Indenture limits, qualifies or conflicts
with a provision of the TIA that is required under the TIA to be a part of and
govern this Indenture, such required provision shall control. If any provision
of this Indenture modifies or excludes any provision of the TIA that may be so
modified or excluded, the provision of the TIA shall be deemed to apply to this
Indenture as so modified or excluded, as the case may be.
SECTION 11.2. Notices
Any notice or communication by the Company, the Guarantors or the
Trustee to the others is duly given if in writing and delivered by hand
delivery, by first-class mail (registered or certified, return receipt
requested), by facsimile or by overnight air courier guaranteeing next day
delivery, to the others' addresses as follows:
If to the Company or any Guarantor:
TeleHub Communications Corporation
2033 North Main Street, Suite 340
Walnut Creek, California 94596
Attention: Chief Financial Officer
Telecopier No.: (510) 295-1140
If to the Trustee:
State Street Bank and Trust Company
Two International Place - 4th Floor
Boston, MA 02110
Attention: Corporate Trust Division:
TeleHub Communications Corporation --
13 7/8% Senior Discount Notes due 2005
Telecopier No.: (617) 664-5371
The Company, the Guarantors or the Trustee, by notice to the
others, may designate additional or different addresses of subsequent notices or
communications.
All notices and communications (other than those sent to Holders
of Notes) shall be deemed to have been duly received: at the time delivered by
hand, if personally delivered; five Business Days after being deposited in the
mail, postage prepaid, if mailed; when receipt is confirmed, if sent by
facsimile; and the next Business Day after timely delivery to the courier, if
sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder of Notes shall be mailed
by first-class mail, certified or registered, return receipt requested, to his
address shown on the register kept by the Registrar. Failure to mail a notice or
communication to a Holder of Notes or any defect in it shall not affect its
sufficiency with respect to other Holders of Notes.
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<PAGE> 80
If a notice or communication is mailed in the manner provided
above within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders of
Notes, it shall mail a copy to the Trustee and each Agent at the same time.
SECTION 11.3. Communication by Holders with Other Holders
Holders of Notes may communicate pursuant to TIA Section 312(b)
with other Holders of Notes with respect to their rights under this Indenture or
the Notes. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA Section 312(c). Upon qualification of this Indenture under
the TIA, the Trustee shall otherwise comply with TIA Section 312(b).
SECTION 11.4. Certificate and Opinion as to Conditions Precedent
Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company shall furnish to the Trustee
(if required by the TIA or this Indenture):
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set
forth in Section 11.5 hereof) stating that, in the opinion of the
signers, all conditions precedent and covenants, if any provided for in
this Indenture relating to the proposed action have been complied with;
and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set
forth in Section 11.5 hereof) stating that, in the opinion of such
counsel, all such conditions precedent and covenants have been complied
with.
SECTION 11.5. Statements Required in Certificate or Opinion
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA Section 314(a)(4)) shall include:
(1) statement that the Person making such certificate or opinion
has read such covenant or condition and the definitions herein relating
thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has made
such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
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<PAGE> 81
(4) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been complied with, provided,
however, that with respect to matters of fact, an Opinion of Counsel may
rely upon an Officers' Certificate or a certificate of a public
official.
SECTION 11.6. Rules by Trustee and Agents
The Trustee may make reasonable rules for action by or at a
meeting of Holders of Notes. The Registrar or Paying Agent may make reasonable
rules and set reasonable requirements for its functions.
SECTION 11.7. Legal Holidays
A "Legal Holiday" is a Saturday, a Sunday or a day on which
banking institutions in The City of New York, in the city in which the Corporate
Trust Office of the Trustee is located or at a place of payment are authorized
or obligated by law, regulation or executive order to remain closed. If a
payment date is a Legal Holiday at a place of payment, payment may be made at
that place on the next succeeding day that is not a Legal Holiday, and no
interest shall accrue for the intervening period.
SECTION 11.8. No Recourse Against Others
(a) No past, present or future director, officer, employee,
agent, or stockholder of the Company or any Subsidiary (other than the Company
or its Subsidiaries), as such, shall have any liability for any Obligations of
the Company or the Guarantors under the Notes, the Guarantees or this Indenture
or for any claim based on, in respect of or by reason of such Obligations or
their creation. Each Holder of Notes, by accepting a Note, waives and releases
all such liability. The waiver and release shall be part of the consideration
for the issuance of the Notes.
(b) Notwithstanding the foregoing, nothing in this provision
shall be construed as a waiver or release of any claims under the federal
securities laws.
SECTION 11.9. GOVERNING LAW
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICT OF LAWS. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE.
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<PAGE> 82
SECTION 11.10. No Adverse Interpretation of Other Agreements
This Indenture may not be used to interpret another indenture,
loan or debt agreement of the Company or its Subsidiaries. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
SECTION 11.11. Successors
All agreements of the Company in this Indenture and the Notes
shall bind its successor. All agreements of the Trustee in this Indenture shall
bind its successor.
SECTION 11.12. Severability
In case any one or more of the provisions in this Indenture or in
the Notes shall be held invalid, illegal or unenforceable in any jurisdiction,
in any respect for any reason, the validity, legality and enforceability of any
such provision in every other jurisdiction and in every other respect, and of
the remaining provisions, shall not in any way be affected or impaired thereby,
it being intended that all of the provisions hereof shall be enforceable to the
full extent permitted by law.
SECTION 11.13. Counterpart Originals
This Indenture may be executed in any number of counterparts,
each of which shall be deemed to be an original, but all of them together shall
represent the same agreement.
SECTION 11.14. Table of Contents, Headings, etc
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof and shall in no way
modify or restrict any of the terms or provisions hereof.
[signatures on following page]
76
<PAGE> 83
SIGNATURES
IN WITNESS WHEREOF, the undersigned have caused this Indenture to
be executed as of the date first above written.
TELEHUB COMMUNICATIONS CORPORATION
By:
---------------------------------
Name: Donald H. Sledge
Title: President and Chief
Executive Officer
TELEHUB NETWORK SERVICES CORPORATION
By:
---------------------------------
Name: Donald H. Sledge
Title: Chief Executive Officer
TELEHUB TECHNOLOGIES CORPORATION
By:
---------------------------------
Name: Donald H. Sledge
Title: Chief Executive Officer
TELEHUB LEASING CORPORATION
By:
---------------------------------
Name: Donald H. Sledge
Title: President
STATE STREET BANK AND TRUST COMPANY,
as trustee
By:
---------------------------------
Name: Chi Ma
Title: Assistant Vice President
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<PAGE> 84
EXHIBIT A
FORM OF NOTE
[Face of Note]
FOR PURPOSES OF SECTION 1273 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED,
THIS SECURITY HAS ORIGINAL ISSUE DISCOUNT. THE "ISSUE PRICE" IS $490.34 PER
$1,000 PRINCIPAL AMOUNT AT MATURITY. THE ISSUE DATE OF THIS NOTE IS JULY 30,
1998 AND THE YIELD TO MATURITY IS 13 7/8% (COMPOUNDED SEMI-ANNUALLY). THE AMOUNT
OF ORIGINAL ISSUE DISCOUNT FOR UNITED STATES FEDERAL INCOME TAX PURPOSES PER
$1,000 STATED PRINCIPAL AMOUNT AT MATURITY IS $1,064.66 PLUS ALL CURRENT
INTEREST (AS DEFINED). FOR UNITED STATES FEDERAL INCOME TAX PURPOSES, THE STATED
REDEMPTION PRICE AT MATURITY IS $1,555. FOR UNITED STATES FEDERAL INCOME TAX
PURPOSES, A SIGNIFICANT AMOUNT OF ORIGINAL ISSUE DISCOUNT, TAXABLE AS ORDINARY
INCOME, WILL BE RECOGNIZED BY A HOLDER OF NOTES AS SUCH DEFERRED INTEREST (AS
DEFINED) ACCRUES FROM THE ISSUE DATE.
TELEHUB COMMUNICATIONS CORPORATION
13 7/8% SERIES [A/B] SENIOR DISCOUNT NOTE DUE 2005
No. ___ Up to $125,000,000
CUSIP NO.
TeleHub Communications Corporation, a Nevada corporation, promises
to pay to ________________________ or registered assigns, the stated principal
amount at maturity of ____________________ Dollars ($__________) [if this Notes
is a Global Note, then insert "(which stated principal amount at maturity may
from time to time be increased or decreased to such other stated principal
amounts at maturity (which shall not exceed $125,000,000 at any time) by
adjustments made to the schedule annexed hereto by the Trustee hereinafter
referred to in accordance with the indenture referred to on the reverse of this
Note)] on July 31, 2005.
Current Interest Payment Dates: January 31 and July 31, commencing
on January 31, 2002.
Regular Record Dates: January 15 and July 15.
Reference is hereby made to the further provisions of this Note
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
A-1
<PAGE> 85
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers and a facsimile of its
corporate seal to be affixed hereto or imprinted hereon.
Dated:
TELEHUB COMMUNICATIONS CORPORATION
By:
-------------------------------
Certificate of Authentication:
STATE STREET BANK AND TRUST COMPANY, as Trustee,
certifies that this is one of the [Global] Notes
referred to in the within-mentioned Indenture.
By:
-------------------------------------------
Authorized Signature
A-2
<PAGE> 86
[UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN
DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO
THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY OR BY THE DEPOSITORY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"),
TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT
IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THIS SECURITY IS A GLOBAL NOTE
WITHIN THE MEANING OF THE INDENTURE REFERRED TO HEREINAFTER. THIS GLOBAL NOTE
MAY NOT BE EXCHANGED, IN WHOLE OR IN PART, FOR A SECURITY REGISTERED IN THE NAME
OF ANY PERSON OTHER THAN THE DEPOSITORY TRUST COMPANY OR A NOMINEE THEREOF
EXCEPT IN THE CIRCUMSTANCES SET FORTH IN SECTION 2.6 OF THE INDENTURE, AND MAY
NOT BE TRANSFERRED, IN WHOLE OR IN PART, EXCEPT IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN SECTION 2.6 OF THE INDENTURE. BENEFICIAL INTEREST IN
THIS GLOBAL NOTE MAY NOT BE TRANSFERRED EXCEPT IN ACCORDANCE WITH SECTION 2.6 OF
THE INDENTURE.]*/
[THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD TO,
OR FOR THE ACCOUNT OR BENEFIT OF, ANY PERSON EXCEPT AS SET FORTH IN THE
FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT
(A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT), (B) IT IS AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) WHO IS AN INSTITUTION (AN
"INSTITUTIONAL ACCREDITED INVESTOR"), OR (C) IT IS NOT A U.S. PERSON AND IS
ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH THE RULE 904
UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT PRIOR TO THE DATE WHICH IS
THREE YEARS AFTER THE LATER OF THE DATE OF ORIGINAL ISSUANCE OF THIS NOTE AND
THE LAST DATE ON WHICH THE ISSUER OR ANY AFFILIATE OF THE ISSUER WAS THE OWNER
OF THIS NOTE (THE "RESALE RESTRICTION TERMINATION DATE") OFFER, SELL OR
OTHERWISE TRANSFER THIS NOTE, EXCEPT (A) TO THE ISSUER, (B) TO A PERSON WHOM THE
SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
- ------------------
*/ This paragraph should be included only if the Note is issued in global form.
- -
A-3
<PAGE> 87
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ANOTHER QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH THE RESALE PROVISIONS OF RULE 144A UNDER
THE SECURITIES ACT, (C) TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO
SUCH TRANSFER, FURNISHES TO THE TRUSTEE A WRITTEN CERTIFICATION CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER
OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), (D)
PURSUANT TO THE RESALE LIMITATIONS PROVIDED BY RULE 144 UNDER THE SECURITIES ACT
(IF AVAILABLE), (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, (F) OUTSIDE THE U.S. TO A FOREIGN PERSON IN A TRANSACTION
MEETING THE REQUIREMENTS OF REGULATION S UNDER THE SECURITIES ACT OR (G)
PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT (BASED, IN THE CASE OF CLAUSES (C), (D), (F) AND (G) ABOVE,
UPON AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE ISSUER IF THE ISSUER SO
REQUESTS), SUBJECT IN EACH OF THE FOREGOING CASES TO ANY REQUIREMENT OF LAW THAT
THE DISPOSITION OF ITS PROPERTY OR THE PROPERTY OF SUCH ACCOUNT BE AT ALL TIMES
WITHIN ITS CONTROL AND TO COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS AND
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED
A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IF THE PROPOSED TRANSFEREE
IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO THE TRUSTEE AND THE ISSUER SUCH CERTIFICATIONS, LEGAL
OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO
CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
THE FOREGOING RESTRICTIONS ON RESALE WILL NOT APPLY SUBSEQUENT TO THE RESALE
RESTRICTION TERMINATION DATE."]**/
[THE NOTES REPRESENTED BY THIS CERTIFICATE WERE INITIALLY ISSUED AS PART
OF AN ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF $1,000 AGGREGATE PRINCIPAL
AMOUNT AT MATURITY OF 137/8% SENIOR DISCOUNT NOTES DUE 2005 (THE "NOTES") OF
TELEHUB COMMUNICATIONS CORPORATION (THE "COMPANY") AND A WARRANT. THE WARRANTS
AND THE NOTES WILL NOT TRADE SEPARATELY UNTIL THE EARLIEST OF (I) OCTOBER 30,
1998, (II) A "CHANGE OF CONTROL" (AS DEFINED IN THE INDENTURE GOVERNING THE
NOTES), (III) THE OCCURRENCE OF AN EVENT OF DEFAULT (AS DEFINED IN THE INDENTURE
GOVERNING THE NOTES), (IV) THE DATE ON WHICH A REGISTRATION STATEMENT WITH
RESPECT TO THE NOTES OR AN EXCHANGE OFFER (AS DEFINED IN THE INDENTURE GOVERNING
THE NOTES) FOR THE NOTES IS DECLARED EFFECTIVE, OR (V) SUCH EARLIER DATE AS
- -----------------
**/ This paragraph should not be included on Exchange Notes received in an
- -- Exchange Offer.
A-4
<PAGE> 88
DETERMINED BY BANCBOSTON SECURITIES INC. IN ITS SOLE DISCRETION (SUCH
DATE, THE "SEPARATION DATE").***/]
[BENEFICIAL OWNERSHIP INTERESTS IN THIS TEMPORARY REGULATION S GLOBAL
NOTE WILL NOT BE EXCHANGEABLE FOR INTERESTS IN THE RULE 144A GLOBAL NOTE OR THE
PERMANENT REGULATION S GLOBAL NOTE OR ANY OTHER NOTE REPRESENTING AN INTEREST IN
THE NOTES REPRESENTED HEREBY WHICH DO NOT CONTAIN A LEGEND CONTAINING
RESTRICTIONS ON TRANSFER, UNTIL THE EXPIRATION OF THE "40-DAY RESTRICTED PERIOD"
(WITHIN THE MEANING OF RULE 903(c)(3) OF REGULATION S UNDER THE SECURITIES ACT)
AND THEN ONLY UPON CERTIFICATION IN FORM REASONABLY SATISFACTORY TO THE TRUSTEE
THAT SUCH BENEFICIAL INTERESTS ARE OWNED EITHER BY NON-U.S. PERSONS OR U.S.
PERSONS WHO PURCHASED SUCH INTERESTS IN A TRANSACTION THAT DID NOT REQUIRE
REGISTRATION UNDER THE SECURITIES ACT. DURING SUCH 40-DAY RESTRICTED PERIOD,
BENEFICIAL OWNERSHIP INTERESTS IN THIS TEMPORARY REGULATION S GLOBAL NOTE MAY
ONLY BE SOLD, PLEDGED OR TRANSFERRED THROUGH THE EUROCLEAR SYSTEM OR CEDEL S.A.
AND ONLY (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C)
OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904
UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (E) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT. DURING SUCH 40-DAY
RESTRICTED PERIOD, INTERESTS IN THIS TEMPORARY REGULATION S GLOBAL NOTE MAY NOT
BE TRANSFERRED TO INSTITUTIONS THAT ARE "ACCREDITED INVESTORS" AS DEFINED IN
RULE 501(a)(1), (2), (3), OR (7) UNDER THE SECURITIES ACT BUT NOT QUALIFIED
INSTITUTIONAL BUYERS AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT. HOLDERS
OF INTERESTS IN THIS TEMPORARY REGULATION S GLOBAL NOTE WILL NOTIFY ANY
PURCHASER OF SUCH RESALE RESTRICTIONS, IF THEN APPLICABLE.****/]
- -------------
***/ This paragraph should not be included on Exchange Notes received in an
- --- Exchange Offer.
****/ This paragraph should be included only if the Note is a temporary
- ---- Regulation S Global Note.
A-5
<PAGE> 89
[Reverse of Note]
TELEHUB COMMUNICATIONS CORPORATION
13 7/8% SERIES [A/B] SENIOR DISCOUNT NOTE DUE 2005
1. Interest. TeleHub Communications Corporation, a Nevada
corporation (the "Company"), promises to pay the stated principal amount at
maturity of this Note on July 31, 2005. This Note will bear interest on the
Accreted Value, and subsequent to July 31, 2001 on the principal amount, at a
rate of 13 7/8% per annum computed on a semiannual bond equivalent basis from
the Issue Date. In the period prior to July 31, 2001, interest at a rate of 13
7/8% per annum will accrete on the Accreted Value but will not be payable in
cash ("Deferred Interest"). Deferred Interest will be paid at maturity of this
Note and will constitute a part of the stated amount at maturity of this Note.
From July 31, 1998 until maturity, interest at a rate of 13 7/8% per annum
("Current Interest") on the stated principal amount at maturity of this Note
will be payable in cash semiannually (to the Holder of record at the close of
business on the January 15 and July 15, as the case may be, immediately
preceding the applicable Current Interest Payment Date) on each Current Interest
Payment Date, commencing on January 31, 2002.The Company will pay interest and
Liquidated Damages, if any, payable pursuant to Section 2 of the Registration
Rights Agreement referred to below, semiannually in arrears on January 31 and
July 31 of each year, or if any such day is not a Business Day, on the next
succeeding Business Day. The Company shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue principal or
Accreted Value, as applicable, and premium, if any, from time to time on demand
at a rate equal to 1% per annum in excess of the interest rate then in effect to
the extent lawful; it shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue installments of interest and
Liquidated Damages (without regard to any applicable grace periods) from time to
time on demand at the same rate to the extent lawful. Interest will be computed
on the basis of a 360-day year comprised of twelve 30-day months.
2. Method of Payment. The Company will pay interest on the Notes
(except defaulted interest) and Liquidated Damages to the Persons who are
registered Holders of Notes at the close of business on the record date
immediately preceding the Current Interest Payment Date, except as provided in
Section 2.12 of the Indenture with respect to defaulted interest. The Notes will
be payable as to principal or Accreted Value, as applicable, premium, interest
and Liquidated Damages, if any, at the office or agency of the Company
maintained for such purpose within the City and State of New York, or, at the
option of the Company, payment of interest and Liquidated Damages, if any, may
be made by check mailed to the Holders at their respective addresses set forth
in the register of Holders; provided that payment by wire transfer of
immediately available/same day funds will be required with respect to principal,
premium, interest and Liquidated Damages, if any, on, all Global Notes. Such
payment shall be in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts.
3. Paying Agent and Registrar. Initially, the Trustee will act as
Paying Agent and Registrar. The Company may change any Paying Agent, Registrar
or co-registrar without notice to
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<PAGE> 90
any Holder. The Company or any of its Subsidiaries may act as Paying Agent or
Registrar, except that for purposes of payments on the Notes pursuant to
Sections 7 and 8 hereof, neither the Company nor any of its Affiliates may act
as Paying Agent.
4. Indenture. The Company issued the Notes under an Indenture,
dated as of July 30, 1998 (the "Indenture"), among the Company, the Guarantors
and the Trustee. Capitalized terms herein are used as defined in the Indenture
unless otherwise defined herein. The terms of the Notes include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbb) as in effect on the
date of the Indenture. Notwithstanding anything to the contrary herein, the
Notes are subject to all such terms, and Holders are referred to the Indenture
and such Act for a statement of such terms. The Notes are unsecured senior
general obligations of the Company limited to $125,000,000 aggregate principal
amount at maturity (subject to Section 2.7 of the Indenture).
5. Optional Redemption. The Notes are not redeemable at the
Company's option prior to July 31, 2002. Thereafter, the Notes will be subject
to redemption at the option of the Company, in whole or in part, upon not less
than 30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning on July 31 of the
years indicated below:
<TABLE>
<CAPTION>
Year Percentage
- --------- ---------------
<S> <C>
2002.............................. 106.9375%
2003.............................. 103.4688%
2004 and thereafter............... 100.0000%
</TABLE>
Notwithstanding the foregoing, upon the occurrence of a TNS/TTC
Transaction, the Company may, at its option, by giving notice of redemption at
any time not less than 30 days nor more than 60 days prior to such transaction,
redeem all, but not less than all, of the outstanding Notes concurrently with
the consummation of such transaction at redemption price equal to, at any time
on or prior to July 31, 2002, 100% of the Accreted Value thereof, plus accrued
and unpaid interest and Liquidated Damages, if any, thereon, plus the applicable
Make-Whole Premium and after such date at the amount that would be payable to
the holders if the Company on such date were to redeem the Notes. On the date
fixed for redemption in connection with a TNS/TTC Transaction, the Company will
deposit with the Trustee sufficient monies to redeem in full the Notes and
deliver to the Trustee a solvency opinion (from a nationally recognized
investment bank with expertise in giving solvency opinions) dated the date of
the consummation of such transaction and stating that after giving effect to the
redemption of the Notes the Company will be solvency.
6. Notice of Redemption. Subject to the provisions of the
Indenture, notice of redemption will be mailed by first class mail to the
Holder's registered address at least 30 days but not more than 60 days before
the redemption date (unless a different notice period is set forth in Section 5
hereof) to each Holder of Notes to be redeemed. If less than all Notes are to be
redeemed
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at any time, the Trustee shall, unless otherwise set forth in the Indenture,
select the Notes to be redeemed in multiples of $1,000 pro rata, by lot or in
accordance with a method which the Trustee considers to be fair and appropriate.
On and after the redemption date interest ceases to accrue on Notes or portions
of them called for redemption (unless the Company shall default in the payment
of the redemption price together with accrued and unpaid interest and Liquidated
Damages, if any, to the redemption date).
7. Change of Control. In the event of a Change of Control of the
Company, each Holder of Notes will have the right to require the Company to
repurchase all or any part (equal to $1,000 face amount or an integral multiple
thereof) of such Holder's Notes, at an offer price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the Change of Control Payment Date (or, in the
case of repurchase of Notes prior to July 31, 2001, at a purchase price equal to
101% of the Accreted Value thereof, plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the Change of Control Payment Date).
8. Asset Sales. In the event of certain Asset Sales, the Company
may be required to make an Asset Sale Offer to purchase the maximum principal
amount of Notes that may be purchased out of Excess Proceeds, at an offer price
in cash equal to 101% of the principal amount of the Notes plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the date of purchase
(or, in the case of repurchase of Notes prior to July 31, 2001, at a purchase
price equal to 101% of the Accreted Value thereof, plus Liquidated Damages
thereon, if any, to the date of repurchase).
9. TNS/TTC Put or Call Option. Upon the occurrence of a TNS/TTC
Transaction, the Company will be required to make an offer to repurchase all or
any part (equal to $1,000 face amount or an integral multiple thereof), or may,
at its option redeem all, but not less than all, of the outstanding Notes at a
redemption price equal to, at any time on or prior to July 31, 2002, the
Accreted Value thereof, plus Liquidated Damages and accrued and unpaid interest
thereon, if any, and the applicable Make-Whole Premium, and after such date, the
amount that would be payable to the Holders if the Company on such date were to
redeem the Notes.
10. Restrictive Covenants. The Indenture imposes certain
limitations on, among other things, the ability of the Company to consolidate or
merge with or into, or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of its properties or assets, the ability of
the Company or its Subsidiaries to dispose of certain assets, to declare or pay
dividends or make certain other distributions and payments, to make certain
investments or purchase, redeem, or otherwise acquire or retire for value Equity
Interests, to incur additional Indebtedness or incur Liens and to enter into
certain transactions with Affiliates, all subject to certain limitations
described in the Indenture.
11. Denominations, Transfer, Exchange. The Notes are in
registered form, without coupons, in denominations of $1,000 stated principal
amount at maturity and integral multiples thereof. A Holder may transfer or
exchange Notes in accordance with the Indenture. The Registrar and the Trustee
may require a Holder, among other things, to furnish appropriate endorsements
and transfer documents and the Company may require a Holder to pay any taxes and
fees required by law
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<PAGE> 92
or permitted by the Indenture. Neither the Company nor the Registrar shall be
required to transfer or exchange any Notes selected for redemption. Also, the
Company need not transfer or exchange any Notes for a period of 15 days before a
selection of Notes to be redeemed.
12. Persons Deemed Owners. The registered Holder of a Note may be
treated as the owner of it for all purposes and neither the Company, the Trustee
nor any Agent shall be affected by notice to the contrary.
13. Unclaimed Money. If money for the payment of principal,
premium, interest or Liquidated Damages, if any, remains unclaimed for two
years, the Trustee or Paying Agent will pay the money back to the Company at its
request. After that, all liability of the Trustee and such Paying Agent with
respect to such money shall cease.
14. Amendment, Supplement, Waiver. Subject to certain exceptions,
the Indenture or the Notes may be amended or supplemented with the written
consent of the Holders of at least a majority in principal amount at maturity of
the Notes then outstanding (including consents obtained in connection with a
tender offer of exchange offer for the Notes). Holders of a majority in
principal amount at maturity of the then outstanding Notes by notice to the
Trustee may on behalf of the Holders of all the Notes waive an existing Default
or Event of Default and its consequences, except a continuing Default or Event
of Default in the payment of principal of (or, if prior to July 31, 2001, the
Accreted Value of), Liquidated Damages, if any, and interest with respect to any
Note held by a non-consenting Holder. Without the consent of any Holder, the
Company may amend or supplement the Indenture or the Notes to, among other
things, cure any ambiguity, defect or inconsistency that does not adversely
affect the rights of any Holder or to provide for uncertificated Notes in
addition to or in place of certificated Notes or to make any change that does
not adversely affect the legal rights of any Holder.
15. Events of Default and Remedies. An Event of Default generally
is: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, any of the Notes; (ii) default in
payment when due (whether at maturity, upon redemption or repurchase, or
otherwise) of the principal of or premium, if any, on any of the Notes; (iii)
failure by the Company or a Guarantor, if applicable, to comply with certain of
its agreements in the Indenture and the Notes; (iv) failure by the Company or a
Guarantor, if applicable, for 30 days after notice to comply with any of its
covenants or agreements in the Indenture or the Notes other than those referred
to in clauses (i), (ii) and (iii) above; (v) default under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Company or any
of its Subsidiaries (or the payment of which is guaranteed by the Company or any
of its Subsidiaries) whether such Indebtedness or guarantee now exists, or is
created after the date of the Indenture, which default (a) is caused by a
failure to pay principal of or premium, if any, or interest on such Indebtedness
prior to the expiration of the grace period provided in such Indebtedness (a
"Payment Default") or (b) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case described in clauses (a) and (b) of
this subsection (v), the principal amount of any such Indebtedness, together
with the principal amount of any other such Indebtedness under which there has
been a Payment Default or the maturity of which has been so accelerated,
aggregates $2.0 million or more; (vi) failure by the Company or any of its
Subsidiaries
A-9
<PAGE> 93
to pay final judgments aggregating in excess of $2.0 million, which judgments
are not paid, discharged or stayed for a period of 60 days after their entry;
(vii) certain events with respect to the unenforceability of the Guarantees of
the Guarantors; and (viii) certain events of bankruptcy or insolvency with
respect to the Company or any of its Subsidiaries. Subject to certain
limitations in the Indenture, if an Event of Default occurs and is continuing,
the Trustee or the Holders of at least 25% in principal amount at maturity of
the then outstanding Notes may declare all of the principal of (or, if prior to
July 31, 2001, the Accreted Value of) the Notes, accrued and unpaid interest or
Liquidated Damages, if any, thereon and all other Obligations thereunder, to be
due and payable immediately, except that in the case of an Event of Default
arising from certain events of bankruptcy or insolvency with respect to the
Company and any Subsidiary, all outstanding Notes shall become due and payable
immediately without further action or notice. Holders may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the Notes may direct
the Trustee in its exercise of any trust or power. The Company must furnish an
annual compliance certificate to the Trustee.
16. Trustee Dealings with Company. State Street Bank and Trust
Company, the Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Notes and may otherwise deal with
the Company or its respective Subsidiaries or Affiliates with the same rights it
would have if it were not Trustee.
17. No Recourse Against Others. No past, present or future
director, officer, employee, agent or stockholder of the Company, as such, shall
have any liability for any obligations of the Company under the Notes or the
Indenture or for any claim based on, in respect of or by reason of, such
obligations or their creation. Each Holder, by accepting a Note, waives and
releases all such liability. The waiver and release are part of the
consideration for the issue of the Notes.
18. Authentication. This Note shall not be valid until the
Trustee or an authenticating agent signs the certificate of authentication on
the other side of this Note.
19. Abbreviations. Customary abbreviations may be used in the
name of a Holder or an assignee, such as: TEN COM (=tenants in common), TEN ENT
(=tenants by the entireties), JT TEN (=joint tenants with right of survivorship
and not as tenants in common), CUST (=Custodian), and U/G/M/A (=Uniform Gifts to
Minors Act).
[20. Additional Rights of Holders of Transfer Restricted
Securities. In addition to the rights provided to Holders of Notes under the
Indenture, Holders of Transfer Restricted Securities shall have all the rights
set forth in the Registration Rights Agreement, dated as of the date of the
Indenture (the "Registration Rights Agreement"), by and among the Company, the
Guarantors and the Initial Purchaser. Pursuant to the Registration Rights
Agreement, the Company will be obligated to consummate an exchange offer
pursuant to which the Holder of this Note shall have the right to exchange this
Note for the Company's 13 7/8% Series B Senior Discount Notes due 2005 (the
"Exchange Notes"), which have been registered under the Securities Act, in like
principal amount and having terms identical in all material respects as the
Original Notes. The Holders of the Original Notes shall be entitled to receive
certain additional interest payments ("Liquidated Damages") in the event such
exchange offer is not consummated and upon certain other conditions, all
pursuant to and
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<PAGE> 94
in accordance with the terms of the Registration Rights Agreement. Liquidated
Damages which may be payable pursuant to the Registration Rights Agreement shall
be payable in the same manner as set forth herein with respect to the stated
interest. The provision of the Registration Rights Agreement relating to such
additional interest are incorporated herein by reference and made a part hereof
as if set forth herein in full.]*****/
21. CUSIP Numbers. Pursuant to a recommendation promulgated by
the Committee on Uniform Note Identification Procedures, the Company will cause
CUSIP numbers to be printed on the Notes as a convenience to Holder of the
Notes. No representation is made as to the accuracy of such numbers as printed
on the Notes and reliance may be placed only on the other identification numbers
printed hereon.
22. GOVERNING LAW. THIS NOTE AND THE INDENTURE SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS
APPLIED TO CONTRACTS MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
23. Indenture. Each Holder, by accepting a Note, agrees to be
bound by all of the terms and provisions of the Indenture, as the same may be
amended from time to time.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture or Registration Rights Agreement.
Requests may be made to: TeleHub Communications Corporation, 2033 North Main
Street, Suite 340, Walnut Creek, California 94596, Attention: Chief Financial
Officer.
- --------
*****/ This paragraph should not be included on Exchange Notes received in the
Exchange Offer.
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<PAGE> 95
[FORM OF NOTATION ON NOTE RELATING TO GUARANTEE]
SENIOR GUARANTEE
The Guarantors (as defined in the Indenture (the "Indenture")
referred to in the Note upon which this notation is endorsed and each
hereinafter referred to as a "Guarantor," which term includes any successor
person under the Indenture) have unconditionally guaranteed on a senior basis
(such guarantee by each Guarantor being referred to herein as the "Guarantee")
(i) the due and punctual payment of the principal of (or, if prior to July 31,
2001, the Accreted Value (as defined in the Indenture) of), Liquidated Damages
(as defined in the Indenture) and interest on the Notes, whether at maturity, by
acceleration or otherwise, the due and punctual payment of interest on the
overdue principal and interest, if any, on the Notes, to the extent lawful, and
the due and punctual performance of all other obligations of the Company to the
Holders or the Trustee all in accordance with the terms set forth in Article 10
of the Indenture and (ii) in case of any extension of time of payment or renewal
of any Notes or any of such other obligations, that the same will be promptly
paid in full when due or performed in accordance with the terms of the extension
or renewal, whether at stated maturity, by acceleration or otherwise.
No stockholder, officer, director, employee or agent, as such,
past, present or future, of any Subsidiary Guarantor shall have any liability
under the Guarantee by reason of his or its status as such stockholder, officer,
director, employee or agent.
The Guarantee shall not be valid or obligatory for any purpose
until the certificate of authorization on the Notes upon which the Guarantee is
noted shall have been executed by the Trustee under the Indenture by the manual
signature on one of its authorized officers.
This Guarantee is subject to release upon the terms set forth in
the Indenture.
TELEHUB NETWORK SERVICES CORPORATION
By:
---------------------------------
Name:
Title:
TELEHUB TECHNOLOGIES CORPORATION
By:
---------------------------------
Name:
Title:
TELEHUB LEASING CORPORATION
By:
---------------------------------
Name:
Title:
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<PAGE> 96
ASSIGNMENT FORM
To assign this Note, fill in the form below and have your signature guaranteed:
I or we assign and transfer this Note to:
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________as agent to transfer
this Note on the books of the Company. The agent may substitute another to act
for him.
- --------------------------------------------------------------------------------
Your Signature:
-----------------------------------------------------------------
(Sign exactly as your name appears on the other side of this Note)
Date:
----------------------------------
Signature Guarantee:
------------------------------------------------------------
NOTICE: Your Signature must be guaranteed by an Institution which is a member of
one of the following recognized signature Guarantee Programs: (i) The Securities
Transfer Agent Medallion Program; (ii) The New York Stock Exchange Medallion
Program; (iii) The Stock Exchange Medallion Program; or (iv) any other guarantee
program acceptable to the Trustee.
In connection with any transfer of this Note the Holder hereof may be required
by the Indenture to deliver to the Trustee and the Registrar a certification
substantially in the form of Exhibit B to the Indenture.
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<PAGE> 97
FORM OF OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.14 or Section 4.15 of the Indenture, check the appropriate
box:
Section 4.14 [ ] Section 4.15 [ ]
If you want to have only part of this Note purchased by the
Company pursuant to Section 4.14 or Section 4.15 of the Indenture, state the
amount (in integral multiples of $1,000):
$
----------------------------------------
Date:
------------------------------------
Signature:
---------------------------------------------------------------------
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee:
------------------------------------------------------------
NOTICE: Your Signature must be guaranteed by an Institution which is a member of
one of the following recognized signature Guarantee Programs: (i) The Securities
Transfer Agent Medallion Program; (ii) The New York Stock Exchange Medallion
Program; (iii) The Stock Exchange Medallion Program; or (iv) any other guarantee
program acceptable to the Trustee.
SCHEDULE OF EXCHANGES FOR DEFINITIVE NOTES(3)
The following exchanges of a part of this Global Note for Definitive Notes have
been made:
<TABLE>
<CAPTION>
Principal Amount of Signature of
Amount of decrease Amount of increase in this Global Note authorized officer of
Date of in Principal Amount Principal Amount of following such Trustee or Note
Exchange of this Global Note this Global Note decrease (or increase) Custodian
- -------------- ---------------------- ---------------------- ----------------------- ---------------------
<S> <C> <C> <C> <C>
</TABLE>
- --------------
(3) This schedule should be included only if the Note is issued in global form.
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<PAGE> 98
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF NOTES
Re: 13 7/8% Series [A/B] Senior Discount Notes due 2005
of TeleHub Communications Corporation
This Certificate relates to $_____ principal amount of Notes held
in */ _______ bookentry or */ ______ definitive form by _________________ (the
"Transferor").
The Transferor:*/
[ ] has requested the Registrar by written order to exchange or register the
transfer of a Note or Notes; or
[ ] has requested the Trustee by written order to exchange its Note or Notes
in definitive, registered form for a beneficial interest in a Global
Note held by the Depository equal to the principal amount of notes it
holds (or the portion thereof indicated above); or
[ ] has requested the trustee by written order to deliver in exchange for
its beneficial interest in a Global Note held by the Depository a Note
or Notes in definitive, registered form equal to its beneficial interest
in such Global Note (or the portion thereof indicated above).
In connection with such request and in respect of each such Note, the
Transferor does hereby certify that the transferor is familiar with the
indenture relative to the above captioned Notes and that the transfer of
this Note does not require registration under the Securities Act (as
defined below) because:*
[ ] Such Note is being acquired for the Transferor's own account without
transfer (in satisfaction of Section 2.6(a)(ii)(a), Section 2.6(b)(i) or
Section 2.6(d)(i)(a) of the Indenture).
[ ] Such Note is being transferred to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act")), in a transaction meeting the requirements of Rule
144A under the Securities Act.
[ ] Such Note is being transferred outside the U.S. to a foreign person
pursuant to an exemption from registration in a transaction meeting the
requirements of Regulation S under the Securities Act (based on an
opinion of counsel if the Company so requests and together with a
certification in substantially the form of Exhibit D to the Indenture).
- ------------
*/ Check applicable box.
- -
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<PAGE> 99
[ ] Such Note is being transferred in a transaction meeting the requirements
of Rule 144 under the Securities Act (based on an opinion of counsel if
the Company so requests).
[ ] Such Note is being transferred pursuant to an effective registration
statement under the Securities Act.
[ ] Such Note is being transferred to an institutional "accredited investor"
within the meaning of Rule 501(a)(1), (2), (3) or (7) under the
Securities Act pursuant to a private placement exemption from the
registration requirements of the Securities Act (based on an opinion of
counsel if the Company so requests together with a certification in
substantially the form of Exhibit C to the Indenture).
[ ] Such Note is being transferred in reliance on and in compliance with
another exemption from the registration requirements of the Securities
Act (based on an opinion of counsel if the Company so requests).
-------------------------------
[INSERT NAME OF TRANSFEROR]
By:
----------------------------
Name:
Title:
DATE: Address:
--------------------------
TO BE COMPLETED BY TRANSFEREE IF SECOND BOX ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing
this Note for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated: Signed:
------------------------- -------------------------------------
NOTICE: To be executed by an executive
officer
B-2
<PAGE> 100
EXHIBIT C
FORM OF CERTIFICATE TO BE DELIVERED BY ACCREDITED INSTITUTIONS
------------ ---, ----
State Street Bank and Trust Company,
as Registrar
Attn: Corporate Trust Division
Ladies and Gentlemen:
In connection with our proposed purchase of $_____ aggregate
principal amount of 13 7/8% Series [A/B] Senior Discount Notes due 2005 (the
"Notes") of TeleHub Communications Corporation (the "Issuer"), an Illinois
corporation, we confirm that:
1. We are an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended
(the "Securities Act")) purchasing for our own account or for the account of
such an institutional "accredited investor," and we are acquiring the Notes for
investment purposes and not with a view to, or for offer or sale in connection
with, any distribution in violation of the Securities Act or the laws of any
state or other jurisdiction, and we have such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of our investment in the Notes, and we and any accounts for which we are
acting are each able to bear the economic risk of our or its investment.
2. We understand that any subsequent transfer of the Notes is
subject to certain restrictions and conditions set forth in the Indenture
relating to the Notes (the "Indenture") and the undersigned agrees to be bound
by, and not to resell, pledge or otherwise transfer the Notes except in
compliance with, such restrictions and conditions of the Securities Act.
3. We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes may not be offered or
sold except as described below. We agree, on our own behalf and on behalf of any
account for which we are purchasing the Notes, and each subsequent holder of the
Notes by its acceptance thereof will agree, not to offer, sell or otherwise
transfer such Notes prior to the date which is two years after the later of the
date of original issue of such Notes and the last date on which the Issuer or
any affiliate of the Issuer was the owner of such Notes (the "Resale Restriction
Termination Date"), except (A) to the Issuer, (B) in accordance with Rule 144A
under the Securities Act to a "qualified institutional buyer" (as defined
therein) in a transaction meeting the requirements of Rule 144A, (C) to an
institutional "accredited investor" (as defined above) that is purchasing for
his own account or for the account of such an "accredited investor," and that,
prior to such transfer, furnishes to the Trustee (as defined in the Indenture) a
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<PAGE> 101
signed letter, substantially identical to this letter, containing certain
representations and agreements relating to the restrictions on transfer of the
Notes (the form of which letter can be obtained from the Trustee), (D) pursuant
to the exemption from registration provided by Rule 144 under the Securities
Act, if available, (E) pursuant to an effective registration statement under the
Securities Act, (F) outside the U.S. to a foreign person in a transaction
meeting the requirements of Regulation S under the Securities Act, or (G)
pursuant to any other available exemption from the registration requirements of
the Securities Act (based upon an opinion of counsel reasonably acceptable to
the Issuer if the Issuer so requests), subject in each of the foregoing cases,
to any requirement of law that the disposition of our property or the property
of such investor account or accounts be at all times within our or their control
and to compliance with applicable securities laws of any state of other
jurisdiction. The foregoing restrictions on resale will not apply subsequent to
the Resale Restriction Termination Date, and we further agree to provide to any
person purchasing any of the Notes from us a notice advising such purchaser that
resales of the Notes are restricted as stated herein.
4. We understand that, on any proposed offer, sale or other
transfer of any Notes prior to the Resale Restriction Termination Date, we will
be required to furnish to the Trustee and the Issuer such certifications, legal
opinions, and other information as either of them may reasonably require to
confirm that the proposed transaction complies with the foregoing restrictions.
We further understand that the Notes purchased by us will bear a legend
reflecting the substance of this and the preceding paragraph.
5. We are acquiring the Notes purchased by us for our own account
or for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion.
We acknowledge that you, the Trustee and others are entitled to
rely upon this letter and are irrevocably authorized to produce this letter or a
copy hereof to any interested party in any administrative or legal proceedings
or official inquiry with respect to the matters covered hereby. We agree to
notify you promptly in writing if any of our representations or warranties
ceases to be accurate and complete.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
-----------------------------------------------
(Name of Purchaser)
BY:
--------------------------------------
Name:
Title:
Address:
C-2
<PAGE> 102
EXHIBIT D
FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION
WITH TRANSFERS PURSUANT TO REGULATION S
----------, -----
State Street Bank and Trust Company,
as Registrar
Attention: Corporate Trust Division
Ladies and Gentlemen:
In connection with our proposed sale of $__________ aggregate
principal amount of 13 7/8% Series [A/B] Senior Discount Notes due 2005 (the
"Notes") of TeleHub Communications Corporation, an Illinois corporation (the
"Company"), we represent that:
(i) the offer of the Notes was not made to a person in the United
States;
(ii) at the time the buy order was originated, the transferee was
outside the United States or we and any person acting on our behalf
reasonably believed that the transferee was outside the United States;
(iii) no directed selling efforts have been made by us, any of our
affiliates or any person acting on our or their behalf in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable; and
(iv) the transaction is not part of a plan or scheme to evade the
registration requirements of the U.S. Securities Act of 1933.
You and the Company are entitled to rely upon this letter and you
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Terms used in this certificate have
the meanings set forth in Regulation S.
Very truly yours,
--------------------------------
[Name of Transferor]
BY:
-----------------------------
Name:
Title:
Address:
D-1
<PAGE> 1
EXHIBIT 4.4
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is
made and entered into as of July 30, 1998 by and among TeleHub Communications
Corporation, a Nevada corporation (the "Company"), and TeleHub Technologies
Corporation, a Nevada corporation, TeleHub Leasing Corporation, a Nevada
corporation, and TeleHub Network Services Corporation, an Illinois corporation
(collectively, the "Guarantors"), and BancBoston Securities Inc. (the "Initial
Purchaser").
This Agreement is made pursuant to the Purchase Agreement
dated as of July 27, 1998 by and among the Company, the Guarantors and the
Initial Purchaser (the "Purchase Agreement"), which provides for the sale by the
Company to the Initial Purchaser of an aggregate of 125,000 Units consisting of
an aggregate principal amount at maturity of $125,000,000 of the Company's
13 7/8% Senior Discount Notes due 2005 (the "Notes") and the guarantees thereof
by the Guarantors and Warrants to purchase an aggregate of 2,082,732 shares of
the Company's common stock. The Company and the Guarantors are collectively
referred to herein as the "Issuers." In order to induce the Initial Purchaser to
enter into the Purchase Agreement and to purchase the Notes, each of the Issuers
has agreed to provide to the Initial Purchaser and its direct and indirect
transferees the registration rights for the Notes set forth in this Agreement.
The execution and delivery of this Agreement is a condition precedent to the
obligations of the Initial Purchaser under the Purchase Agreement.
In consideration of the foregoing, the parties hereto
agree as follows:
1. Definitions. As used in this Agreement, the following
capitalized defined terms shall have the following meanings (and, unless
otherwise indicated, capitalized terms used herein without definition shall have
the meanings ascribed to them in the Purchase Agreement):
"Act" shall mean the Securities Act of 1933, as amended.
"Agreement" shall have the meaning set forth in the
preamble to this Agreement.
"Applicable Period" shall have the meaning set forth in
Section 3(t) hereof.
"Closing Date" shall mean the Closing Date as defined in
the Purchase Agreement.
<PAGE> 2
"Commission" shall mean the Securities and Exchange
Commission, or such other federal agency administering the Act or
the Exchange Act.
"Company" shall have the meaning set forth in the preamble
to this Agreement, and shall also include the Company's
successors.
"Depository" shall mean The Depository Trust Company, or
any successor depositary appointed by the Company; provided,
however, that such depositary must have an address in the Borough
of Manhattan, The City of New York.
"Effectiveness Period" shall have the meaning set forth in
Section 2(b) hereof.
"Event Date" shall have the meaning set forth in Section
2(e) hereof.
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
"Exchange Offer" shall mean the exchange offer by the
Company of Exchange Notes for Notes pursuant to Section 2(a)
hereof.
"Exchange Offer Registration" shall mean a registration
under the Act effected pursuant to Section 2(a) hereof.
"Exchange Offer Registration Statement" shall mean the
registration statement (on Form S-4 or, if applicable, on any
other appropriate form) relating to the Exchange Offer, and all
amendments and supplements to such registration statement,
including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Exchange Period" shall have the meaning set forth in
Section 2(a) hereof.
"Exchange Notes" shall mean the 13 7/8% Series B Senior
Discount Notes due 2005 to be issued by the Company and guaranteed
by the Guarantors under the Indenture and containing terms
identical to the Notes (except that (i) interest thereon shall
accrue from the last date on which interest was paid on the Notes
or, if no such interest has been paid, from July 31, 2001, and
(ii) the transfer restrictions thereon shall be eliminated) to be
offered to Holders of Notes in exchange for Notes pursuant to the
Exchange Offer.
"Guarantors" shall have the meaning set forth in the
preamble to this Agreement, and shall also include successors to
any of the Guarantors.
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<PAGE> 3
"Holder" shall mean the Initial Purchaser, for so long as
it owns any Registrable Securities, and each of its respective
successors, assigns and direct and indirect transferees who become
registered owners of Registrable Securities under the Indenture.
"Indenture" shall mean the Indenture dated as of July 30,
1998 by and among the Company, the Guarantors and State Street
Bank and Trust Company, as trustee, as the same may be amended or
supplemented from time to time in accordance with the terms
thereof.
"Initial Purchaser" shall have the meaning set forth in
the preamble to this Agreement.
"Inspectors" shall have the meaning set forth in Section
3(n) hereof.
"Liquidated Damages" shall have the meaning set forth in
Section 2(e) hereof.
"Majority Holders" shall mean the Holders of a majority of
the aggregate principal amount at maturity of outstanding (as
determined under the Indenture) Registrable Securities.
"NASD" shall mean the National Association of Securities
Dealers, Inc.
"Notes" shall have the meaning set forth in the preamble
to this Agreement.
"Participating Broker-Dealer" shall have the meaning set
forth in Section 3(t) hereof.
"Person" shall mean any individual, corporation, limited
liability company, general or limited partnership, limited
liability partnership, joint venture, association, joint-stock
company, trust, charitable foundation, unincorporated
organization, government or agency or political subdivision
thereof or any other entity.
"Private Exchange" shall have the meaning set forth in
Section 2(a) hereof.
"Private Exchange Notes" shall have the meaning set forth
in Section 2(a) hereof.
"Prospectus" shall mean the prospectus included in a
Registration Statement, including any preliminary prospectus, and
any such prospectus as amended or supplemented by any prospectus
supplement, including a prospectus
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<PAGE> 4
supplement with respect to the terms of the offering of any
portion of the Registrable Securities covered by a Shelf
Registration Statement, including post-effective amendments, and
in each case including all material incorporated by reference
therein.
"Purchase Agreement" shall have the meaning set forth in
the preamble to this Agreement.
"Records" shall have the meaning set forth in Section 3(n)
hereof.
"Registrable Securities" shall mean the Notes and, if
issued, the Private Exchange Notes; provided, however, that Notes
or Private Exchange Notes, as the case may be, shall cease to be
Registrable Securities when (i) a Registration Statement with
respect to such Notes or Private Exchange Notes or the resale
thereof shall have been declared effective under the Act and such
Notes or Private Exchange Notes, as the case may be, shall have
been disposed of pursuant to such Registration Statement, (ii)
such Notes or Private Exchange Notes, as the case may be, shall
have become eligible to be sold to the public pursuant to Rule
144(k) (or any similar provision then in force, but not Rule 144A)
under the Act, (iii) such Notes or Private Exchange Notes, as the
case may be, shall have ceased to be outstanding or (iv) with
respect to the Notes, such Notes have been exchanged for Exchange
Notes upon consummation of the Exchange Offer.
"Registration Expenses" shall mean any and all expenses
incident to performance of or compliance by the Issuers with this
Agreement, including, without limitation: (i) Commission, stock
exchange or NASD registration and filing fees, including, if
applicable, the fees and expenses of any "qualified independent
underwriter" and its counsel that is required to be retained by
any Holder of Registrable Securities in accordance with the rules
and regulations of the NASD, (ii) fees and expenses incurred in
connection with compliance with state securities or blue sky laws
(including reasonable fees and disbursements of counsel for any
underwriters or Holders in connection with the blue sky
qualification of any of the Exchange Notes or Registrable
Securities) and compliance with the rules of the NASD, (iii)
expenses of any Persons in preparing or assisting in preparing,
printing and distributing any Registration Statement, any
Prospectus and any amendments or supplements thereto, and in
preparing or assisting in preparing, printing and distributing any
underwriting agreements, securities sales agreements and other
documents relating to the performance of and compliance with the
obligations under this Agreement, (iv) rating agency fees, (v)
fees and disbursements of counsel for and independent certified
public accountants of the Issuers, including the expenses of any
"cold comfort" letters required by or incident to such performance
and compliance, (vi) fees and expenses of the Trustee, and any
exchange agent or custodian, (vii) fees and expenses incurred in
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<PAGE> 5
connection with the listing, if any, of any of the Registrable
Securities on any securities exchange or exchanges, and (viii) the
reasonable fees and expenses of any special experts retained by
the Issuers in connection with any Registration Statement. The
term "Registration Expenses" shall not include fees of counsel to
any underwriters or the Holders (other than the fees described in
clauses (i) and (ii) above), underwriting discounts and
commissions and transfer taxes, if any, relating to the sale or
disposition of Registrable Securities by a Holder pursuant to a
Shelf Registration Statement.
"Registration Statement" shall mean any registration
statement of the Issuers relating to the Exchange Notes or
Registrable Securities pursuant to the provisions of this
Agreement, and all amendments and supplements to any such
registration statement, including post-effective amendments, in
each case including the Prospectus contained therein, all exhibits
thereto and all material incorporated by reference therein.
"Shelf Registration" shall mean a registration effected
pursuant to Section 2(b) hereof.
"Shelf Registration Statement" shall mean a "shelf"
registration statement of the Issuers pursuant to the provisions
of Section 2(b) of this Agreement which covers all of the
Registrable Securities, on an appropriate form under Rule 415
under the Act, or any similar rule that may be adopted by the
Commission, and all amendments and supplements to such
registration statement, including post-effective amendments, in
each case including the Prospectus contained therein, all exhibits
thereto and all material incorporated by reference therein.
"TIA" shall mean the Trust Indenture Act of 1939, as
amended.
"Trustee" shall mean the trustee under the Indenture.
2. Registration Under the Act.
(a) Exchange Offer. To the extent not prohibited by any
applicable law or applicable interpretation of the staff of the Commission, each
of the Issuers shall, for the benefit of the Holders, at the Issuers' cost, use
its best efforts to cause to be filed with the Commission an Exchange Offer
Registration Statement on or prior to 60 days after the Closing Date on an
appropriate form under the Act covering the offer by the Issuers to the Holders
to exchange all of the Registrable Securities (other than Private Exchange
Notes) for a like aggregate principal amount of Exchange Notes, to cause such
Exchange Offer Registration Statement to be declared effective under the Act by
the Commission on or prior to 135 days after the Closing Date, to cause such
Registration Statement to remain effective until the closing of the Exchange
Offer and to cause the Exchange Offer to be
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<PAGE> 6
consummated on or prior to 30 days after the date on which the Exchange Offer
Registration Statement was declared effective under the Act by the Commission.
The Exchange Notes will be issued under the Indenture. Upon the effectiveness of
the Exchange Offer Registration Statement, the Issuers shall promptly commence
the Exchange Offer, it being the objective of such Exchange Offer to enable each
Holder (other than Participating Broker-Dealers) eligible and electing to
exchange Registrable Securities for Exchange Notes (assuming that such Holder is
not an affiliate of any of the Issuers within the meaning of Rule 405 under the
Act, acquires the Exchange Notes in the ordinary course of such Holder's
business and has no arrangements or understandings with any Person to
participate in the Exchange Offer for the purpose of distributing the Exchange
Notes) to transfer such Exchange Notes from and after their receipt without any
limitations or restrictions under the Act or under state securities or blue sky
laws.
In connection with the Exchange Offer, the Issuers shall:
(i) mail to each Holder a copy of the Prospectus forming
part of the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
(ii) keep the Exchange Offer open for acceptance for a period
of not less than 30 days after the date notice thereof is mailed to the
Holders, or longer if required by applicable law (such period being
referred to herein as the "Exchange Period");
(iii) utilize the services of the Depository for the Exchange
Offer;
(iv) permit Holders to withdraw tendered Notes at any time
prior to the close of business, New York City time, on the last
business day of the Exchange Period, by sending to the institution
specified in the notice a telegram, telex, facsimile transmission or
letter setting forth the name of such Holder, the principal amount at
maturity of Notes delivered for exchange, and a statement that such
Holder is withdrawing its election to have such Notes exchanged;
(v) notify each Holder that any Note not tendered will
remain outstanding and continue to accrue interest, but will not retain
any rights under this Agreement (except in the case of the Initial
Purchaser and Participating Broker-Dealers as provided herein); and
(vi) otherwise comply in all respects with all applicable
laws relating to the Exchange Offer.
If, prior to consummation of the Exchange Offer, the Initial
Purchaser holds any Notes acquired by it and having the status of an unsold
allotment in the initial
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<PAGE> 7
distribution, the Company upon the request of the Initial Purchaser shall,
simultaneously with the delivery of the Exchange Notes in the Exchange Offer,
issue and deliver to the Initial Purchaser in exchange (the "Private Exchange")
for Notes held by the Initial Purchaser a like principal amount at maturity of
debt securities of the Company, guaranteed by the Guarantors, that are identical
(except that such securities shall bear appropriate transfer restrictions) to
the Exchange Notes (the "Private Exchange Notes") and which are issued pursuant
to the Indenture (which will provide that the Exchange Notes will not be subject
to the transfer restrictions set forth in the Indenture and that the Exchange
Notes, the Private Exchange Notes and the Notes will vote and consent together
on all matters as one class and that none of the Exchange Notes, the Private
Exchange Notes or the Notes will have the right to vote or consent as a separate
class on any matter). The Private Exchange Notes shall be of the same series as
and shall bear the same CUSIP number as the Exchange Notes.
As soon as practicable after the close of the Exchange Offer
or the Private Exchange, as the case may be, the Company shall:
(i) accept for exchange all Notes or portions thereof duly
tendered and not validly withdrawn pursuant to the Exchange Offer;
(ii) accept for exchange all Notes or portions thereof duly
tendered pursuant to the Private Exchange; and
(iii) deliver, or cause to be delivered, to the Trustee for
cancellation all Notes or portions thereof so accepted for exchange by
the Company, and issue, and cause the Trustee to promptly authenticate
and deliver to each Holder, a new Exchange Note or Private Exchange
Note, as the case may be, equal in principal amount to the principal
amount of the Notes surrendered by such Holder.
To the extent not prohibited by applicable law or any
applicable interpre tation of the staff of the Commission, each of the Issuers
shall use its best efforts to complete the Exchange Offer as provided above, and
shall comply with all applicable requirements of the Act, the Exchange Act and
other applicable laws in connection with the Exchange Offer. The Exchange Offer
shall not be subject to any condition, other than that (i) the Exchange Offer
does not violate any applicable law or interpretation of the staff of the
Commission, (ii) no action or proceeding has been instituted or threatened in
any court or by or before any governmental agency with respect to the Exchange
Offer which, in the reasonable judgment of the Issuers, might impair the ability
of the Issuers to proceed with the Exchange Offer, (iii) there has not been
proposed, adopted, or enacted any law, statute, rule or regulation which, in the
reasonable judgment of the Issuers, might materially impair the ability of the
Issuers to proceed with the Exchange Offer or have a material adverse effect on
the Company if the Exchange Offer is consummated or (iv) all governmental
approvals which the Issuers shall reasonably deem necessary for the
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<PAGE> 8
consummation of the Exchange Offer as contemplated shall have been obtained.
Each Holder of Registrable Securities who wishes to exchange such Registrable
Securities for Exchange Notes in the Exchange Offer will be required to make
certain customary representations in connection therewith, including
representations that such Holder is not an affiliate of any of the Issuers
within the meaning of Rule 405 under the Act, that any Exchange Notes to be
received by it will be acquired in the ordinary course of business and that at
the time of the commencement of the Exchange Offer it had no arrangement with
any Person to participate in the distribution (within the meaning of the Act) of
the Exchange Notes and will be required to make such other representations as
may be necessary under applicable Commission rules, regulations or
interpretations to render available the use of Form S-4 or any other appropriate
form under the Act. The Company shall inform the Initial Purchaser, after
consultation with the Trustee and the Initial Purchaser, of the names and
addresses of the Holders to whom the Exchange Offer is made, and the Initial
Purchaser shall have the right to contact such Holders and otherwise facilitate
the tender of Registrable Securities in the Exchange Offer.
In the event that the Issuers are unable to consummate the
Exchange Offer due to any event listed in clauses (i) through (iv) in the
paragraph immediately above, the Issuers shall not be deemed to have breached
any covenant under this Section 2(a).
Upon consummation of the Exchange Offer in accordance with
this Section 2(a), the provisions of this Agreement shall continue to apply,
mutatis mutandis, solely with respect to Registrable Securities that are Private
Exchange Notes and Exchange Notes held by Participating Broker-Dealers, and the
Company shall have no further obligation to register Registrable Securities
(other than Private Exchange Notes and Exchange Notes held by Participating
Broker-Dealers) pursuant to Section 2(b) of this Agreement.
(b) Shelf Registration. In the event that (i) the Exchange
Offer Registration provided in Section 2(a) above is not available to any Holder
or may not be consummated as soon as practicable after the last day of the
Exchange Period because, in either case, it would violate applicable securities
laws or because the applicable interpretations of the staff of the Commission
would not permit the Company to effect the Exchange Offer, or (ii) the Exchange
Offer is not for any other reason consummated within 120 days of the Closing
Date, each of the Issuers shall, at its cost, cause to be filed with the
Commission as promptly as practicable after such determination or date, as the
case may be, and, in any event, on or prior to the earlier of (A) 120 days from
the Closing Date or (B) 60 days thereafter, a Shelf Registration Statement
providing for the sale by the Holders of all of the Registrable Securities, and
shall use its best efforts to cause such Shelf Registration Statement declared
effective by the Commission on or prior to 90 days after such determination or
date. No Holder of Registrable Securities may include any of its Registrable
Securities in any Shelf Registration pursuant to this Agreement unless and until
such Holder furnishes to the Company in writing, within 15 days after receipt of
a
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<PAGE> 9
request therefor, such information as the Company may, after conferring with
counsel with regard to information relating to Holders that would be required by
the Commission to be included in such Shelf Registration Statement or Prospectus
included therein, reasonably request for inclusion in any Shelf Registration
Statement or Prospectus included therein. Each Holder as to which any Shelf
Registration is being effected agrees to furnish promptly to the Company all
information required to be disclosed in the applicable Shelf Registration
Statement or Prospectus included therein by the rules and regulations of the
Commission applicable to the Shelf Registration Statement in order to make the
information previously furnished to the Company by such Holder not materially
misleading.
Each of the Issuers agrees, subject to applicable law or
applicable interpretation of the staff of the Commission, to use its reasonable
best efforts to keep the Shelf Registration Statement continuously effective,
supplemented and amended under the Act for a period ending on the earlier of the
date two years from the Closing Date (subject to extension pursuant to the last
paragraph of Section 3) or when all of the Registrable Securities covered by the
Shelf Registration Statement have been sold pursuant to the Shelf Registration
Statement or cease to be outstanding (the "Effectiveness Period"). Each of the
Issuers shall not permit any securities other than Registrable Securities to be
included in the Shelf Registration. The Company will, in the event a Shelf
Registration Statement is declared effective, provide to each Holder copies of
the prospectus which is a part of the Shelf Registration Statement, notify each
such Holder when the Shelf Registration Statement has become effective and take
certain other actions as are customary to permit resales of the Registrable
Securities covered by the Shelf Registration Statement. Each of the Issuers
further agrees, if necessary, to use its reasonable best efforts to supplement
or amend the Shelf Registration Statement, if required by the Act or the rules,
regulations or instructions applicable to the registration form used by the
Issuers for such Shelf Registration Statement or by any other rules and
regulations thereunder for shelf registrations, or if reasonably requested by
the Majority Holders, and the Company agrees to furnish to the Holders copies of
any such supplement or amendment promptly after its being used or filed with the
Commission.
(c) Expenses. The Issuers, jointly and severally, shall pay
all Registra tion Expenses in connection with registrations pursuant to Section
2(a) or 2(b), whether or not the Exchange Offer or a Shelf Registration is filed
or becomes effective. Each Holder shall pay all expenses of its counsel (other
than the fees described in clauses (i) and (ii) of the definition of
"Registration Expenses"), underwriting discounts and commissions and transfer
taxes, if any, relating to the sale or disposition of such Holder's Registrable
Securities pursuant to the Shelf Registration Statement.
(d) Effective Registration Statement. An Exchange Offer
Registration Statement pursuant to Section 2(a) hereof or a Shelf Registration
Statement pursuant to Section 2(b) hereof will not be deemed to have become
effective unless it has been
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<PAGE> 10
declared effective by the Commission; provided, however, that if, after it has
been declared effective, the offering of Registrable Securities pursuant to a
Shelf Registration Statement is interfered with by any stop order, injunction or
other order or requirement of the Commission or any other governmental agency or
court, such Registration Statement will be deemed not to have been effective
during the period of such interference, until the offering of Registrable
Securities pursuant to such Registration Statement may legally resume.
(e) Liquidated Damages. In the event that an Exchange Offer
Registration Statement has not been filed with the Commission on or prior to 60
days after the Closing Date, additional interest payable by the Issuers, jointly
and severally, as liquidated damages ("Liquidated Damages") will accrue on the
Notes from and including the 61st day after the Closing Date until but excluding
the date such Exchange Offer Registration Statement is filed. In addition, if on
or prior to 135 days after the Closing Date, such Exchange Offer Registration
Statement is not declared effective under the Act by the Commission, Liquidated
Damages will accrue on the Notes from and including the 136th day after the
Closing Date until but excluding the date such Exchange Offer Registration
Statement is declared effective. Further, if on or prior to 30 days after the
date specified for effectiveness of the Exchange Offer Registration Statement
the Exchange Offer is not consummated, Liquidated Damages will accrue on the
Notes from and including the 31st day after the date specified for effectiveness
of the Exchange Offer Registration Statement, but excluding, the consummation of
the Exchange Offer. If applicable law or interpretations of the staff of the
Commission prohibit a Holder from participating in the Exchange Offer or if for
any reason the Exchange Offer is not consummated within 135 days of the Closing
Date and if a Shelf Registration Statement is not filed or declared effective
within the time periods provided by Section 2(b) hereof for such filing or
declaration, Liquidated Damages will accrue on the Notes (other than those
exchanged in the Exchange Offer) or the Private Exchange Notes, as the case may
be, from and including the day immediately following such default until but
excluding the effective date of the Shelf Registration Statement. Further, if
the Shelf Registration Statement or the Exchange Offer Registration Statement is
declared effective but thereafter ceases to be effective or usable during the
time periods specified in this Agreement, Liquidated Damages will accrue on the
Notes (other than those exchanged in the Exchange Offer) or the Private Exchange
Notes, as the case may be, from and including the day immediately following such
default until but excluding the date such Registration Statement is declared
effective. In each case, such Liquidated Damages will be payable in cash
semiannually in arrears, with the first semiannual payment due on the first
interest payment date in respect of the Notes (or the Private Exchange Notes)
fol lowing the date from which Liquidated Damages begin to accrue, and will
accrue, under each circumstance set forth above at a rate per annum equal to an
additional one half of one percent (0.50%) of the principal amount at maturity
of the Notes (or the Private Exchange Notes) upon the occurrence of each such
circumstance, which rate will increase by one half of one percent (0.50%) for
each 90-day period that such Liquidated Damages
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<PAGE> 11
continues to accrue under any circumstance, with an aggregate maximum increase
in the interest rate per annum equal to two percent (2.00%).
Upon the filing of the Exchange Offer Registration Statement,
the effectiveness of the Exchange Offer Registration Statement, or the
consummation of the Exchange Offer, as the case may be, the interest rate borne
by the Notes will be reduced by the full amount of any such increase to the
extent that such increase related to the failure of any such event to have
occurred. Upon the effectiveness of a Shelf Registration Statement, the interest
rate borne by the Notes (and the Private Exchange Notes) shall be reduced, from
and as of the date of such effectiveness, to the original interest rate of the
Notes unless and until increased as described above. Notwithstanding the
foregoing, the Issuers (i) shall not be required to amend or supplement the
Shelf Registration Statement, any related prospectus or any document
incorporated therein by reference and (ii) may suspend the effectiveness of any
such Shelf Registration Statement in the event that, and for a period not to
exceed, for so long as this Agreement is in effect, an aggregate of 90 days in
any one calendar year if (A) an event occurs and is continuing as a result of
which the Shelf Registration Statement, any related prospectus or any document
incorporated therein by reference as then amended or supplemented would, in the
Issuer's good faith judgment, contain an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein
not misleading, and (B) the Issuers determine in their good faith judgment that
the disclosure of such event at such time would have a material adverse effect
on the business, operations or prospects of the Issuers; provided that any such
suspension shall not relieve any of the Issuers from its obligation to pay
Liquidated Damages.
The Company shall notify the Trustee within three business
days after each and every date on which an event occurs in respect of which
Liquidated Damages is required to be paid (an "Event Date"). Liquidated Damages
shall be paid by depositing with the Trustee, in trust, for the benefit of the
Holders of Notes, Exchange Notes or Private Exchange Notes, as the case may be,
on or before the applicable semiannual interest payment date, immediately
available funds in sums sufficient to pay the Liquidated Damages then due. The
Liquidated Damages due shall be payable on each interest payment date to the
record Holder of Notes entitled to receive the interest payment to be paid on
such date as set forth in the Indenture. Each obligation to pay Liquidated
Damages shall be deemed to accrue from and including the day following the
applicable Event Date.
(f) Specific Enforcement. Without limiting the remedies
available to the Initial Purchaser and the Holders, each of the Issuers
acknowledges that any failure by any of the Issuers to comply with its
obligations under Section 2(a) and Section 2(b) hereof would result in material
irreparable injury to the Initial Purchaser or the Holders for which there is no
adequate remedy at law, that it would not be possible to measure damages for
such injuries precisely and that, in the event of any such failure, the Initial
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Purchaser or any Holder may obtain such relief as may be required to
specifically enforce each of the Issuer's obligations under Section 2(a) and
Section 2(b) hereof.
3. Registration Procedures. In connection with the obligations
of each of the Issuers with respect to the Registration Statements pursuant to
Sections 2(a) and 2(b) hereof, each of the Issuers shall:
(a) prepare and file with the Commission a Registration
Statement or Registration Statements as prescribed by Sections 2(a) and
2(b) within the relevant time periods specified in Section 2 hereof on
the appropriate form under the Act, which form (i) shall be selected by
the Issuers, (ii) shall, in the case of a Shelf Registration, be
available for the sale of the Registrable Securities by the selling
Holders and (iii) shall comply as to form in all material respects with
the requirements of the applicable form and include or incorporate by
reference all financial statements required by the Commission to be
filed therewith, and each of the Issuers shall use its best efforts to
cause such Registration Statement to become effective and remain
effective in accordance with Section 2; provided, however, that if (1)
such filing is pursuant to Section 2(b), or (2) a Prospectus contained
in an Exchange Offer Registration Statement filed pursuant to Section
2(a) is required to be delivered under the Act by any Participating
Broker-Dealer who seeks to sell Exchange Notes, before filing any
Registration Statement or Prospectus or any amendments or supplements
thereto, the Issuers, if requested, shall furnish to and afford the
Holders and each such Participating Broker-Dealer, as the case may be,
covered by such Registration Statement, their counsel and the managing
underwriters, if any, a reasonable opportunity to review copies of all
such documents (including copies of any documents to be incorporated by
reference therein and all exhibits thereto) proposed to be filed at
least five business days prior to such filing. The Issuers shall not
file any Registration Statement or Prospectus or any amendments or
supplements thereto in respect of which pursuant to this Agreement the
Holders must be afforded an opportunity to review prior to the filing
of such document, if the Majority Holders or such Participating
Broker-Dealer, as the case may be, their counsel or the managing
underwriters, if any, shall reasonably object;
(b) subject to Section 3(a) hereof, prepare and file with the
Commission such amendments and post-effective amendments to each
Registration Statement as may be necessary to keep such Registration
Statement effective for the Effectiveness Period or the Applicable
Period, as the case may be, and cause each Prospectus to be
supplemented by any required prospectus supplement and as so
supplemented to be filed pursuant to Rule 424 (or any similar provision
then in force) under the Act, and comply with the provisions of the
Act, the Exchange Act and the rules and regulations promulgated
thereunder applicable to it with respect to the disposition of all
securities covered by each Registration Statement during
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the Effectiveness Period or the Applicable Period, as the case may be,
in accordance with the intended method or methods of distribution by
the selling Holders thereof described in this Agreement (including
sales by any Participating Broker-Dealer);
(c) in the case of a Shelf Registration, (i) notify each
Holder, at least five business days prior to filing, that a Shelf
Registration Statement with respect to the Registrable Securities is
being filed and advising such Holder that the distribution of
Registrable Securities will be made in accordance with the method
selected by the Majority Holders, (ii) furnish to each Holder and to
each underwriter of an underwritten offering of Registrable Securities,
if any, without charge, as many copies of each Prospectus, including
each preliminary Prospectus, and any amendment or supplement thereto
and such other documents as such Holder or underwriter may reasonably
request, in order to facilitate the public sale or other disposition of
the Registrable Securities, and (iii) subject to the last paragraph of
this Section 3, consent to the use of the Prospectus or any amendment
or supplement thereto by each of the selling Holders in connection with
the offering and sale of the Registrable Securities covered by the
Prospectus or any amendment or supplement thereto, provided that such
use complies with all applicable laws and regulations;
(d) use its best efforts to register or qualify the
Registrable Securities under all applicable United States state
securities or "blue sky" laws of such jurisdictions as any Holder of
Registrable Securities covered by a Registration Statement and each
underwriter of an underwritten offering of Registrable Securities shall
reasonably request by the time the applicable Registration Statement is
declared effective by the Commission, and do any and all other acts and
things which may be reasonably necessary or advisable to enable such
Holder and underwriter to consummate the disposition in each such
jurisdiction of such Registrable Securities owned by such Holder;
provided, however, that the none of the Issuers shall be required to
(i) qualify as a foreign partnership or foreign corporation or as a
dealer in securities in any jurisdiction where it would not otherwise
be required to qualify but for this Section 3(d), (ii) file any general
consent to service of process in any jurisdiction where it would not
otherwise be subject to such service of process or (iii) subject itself
to taxation in any such jurisdiction if it is not then so subject;
(e) in the case of (A) a Shelf Registration or (B)
Participating Broker-Dealers who have notified the Company that they
will be utilizing the Prospectus contained in the Exchange Offer
Registration Statement as provided in Section 3(t) hereof are seeking
to sell Exchange Notes and are required to deliver Prospectuses, notify
each Holder, or such Participating Broker-Dealers, as the case may be,
their counsel and the managing underwriters, if any, promptly and, if
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requested by such Holder or Participating Broker-Dealer, confirm such
notice in writing (i) when a Registration Statement has become
effective and when any post-effective amendments and supplements
thereto become effective, (ii) of any request by the Commission or any
state securities authority for amendments and supplements to a
Registration Statement or Prospectus or for additional information
after the Registration Statement has become effective, (iii) of the
issuance by the Commission or any state securities authority of any
stop order suspending the effectiveness of a Registration Statement or
the initiation of any proceedings for that purpose, (iv) in the case of
a Shelf Registration, if, between the effective date of a Registration
Statement and the closing of any sale of Registrable Securities covered
thereby, the representations and warranties of any of the Issuers
contained in any underwriting agreement, securities sales agreement or
other similar agreement, if any, relating to such offering cease to be
true and correct in all material respects, (v) if any of the Issuers
receives any notification with respect to the suspension of the
qualification of the Registrable Securities or the Exchange Notes to be
sold by any Holder or Participating Broker-Dealer for offer or sale in
any jurisdiction or the initiation of any proceeding for such purpose,
(vi) of the happening of any event or the failure of any event to occur
or the discovery of any facts or otherwise, during the period a Shelf
Registration State ment is effective or the Applicable Period, as the
case may be, which makes any statement made in the Shelf Registration
Statement, the Exchange Offer Registration Statement or any related
Prospectus untrue in any material respect or which causes such
Registration Statement or Prospectus, as the case may be, to omit to
state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading
and (vii) the Issuers' reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate;
(f) make every effort to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement at the
earliest possible moment;
(g) in the case of a Shelf Registration, furnish to each
Holder, upon request and without charge, at least one conformed copy of
each Registration Statement and any post-effective amendment thereto
(without documents incorporated therein by reference or exhibits
thereto, unless requested);
(h) in the case of a Shelf Registration, cooperate with the
selling Holders to facilitate the timely preparation and delivery of
certificates, if any, representing Registrable Securities to be sold,
which certificates shall not bear any restrictive legends and shall be
in a form eligible for deposit with the Depository; and cause such
Registrable Securities to be in such denominations (consistent with the
provisions of the Indenture) and registered in such names as the
selling Holders
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or the managing underwriters may reasonably request at least two
business days prior to the closing of any sale of Registrable
Securities;
(i) subject to Section 3(a) hereof and the second paragraph of
Section 2(e) hereof, in the case of a Shelf Registration or an Exchange
Offer Registration, upon the occurrence of any circumstance
contemplated by Section 3(e)(ii), 3(e)(iii), 3(e)(iv), 3(e)(v),
3(e)(vi) or 3(e)(vii) hereof, use its best efforts to prepare a
supplement or post-effective amendment to the Registration Statement
and the related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities, such
Prospectus will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading. The Issuers agree to notify each Holder to suspend use of
the Prospectus as promptly as practicable after the occurrence of any
such circumstance, and each Holder hereby agrees to suspend use of the
Prospectus until the Issuers have amended or supplemented the
Prospectus to correct such misstatement or omission;
(j) in the case of a Shelf Registration, furnish to each
Holder of Registrable Securities, upon request and without charge, a
reasonable number of copies of any document which is incorporated by
reference into or is an exhibit to a Registration Statement or a
Prospectus after the initial filing of a Registration Statement;
(k) obtain a CUSIP number for all Exchange Notes or
Registrable Securities, as the case may be, not later than the
effective date of a Registration Statement, and provide the Trustee
with printed certificates for the Exchange Notes or the Registrable
Securities, as the case may be, in a form eligible for deposit with the
Depository;
(l) cause the Indenture to be qualified under the TIA in
connection with the registration of the Exchange Notes or Registrable
Securities, as the case may be, cooperate with the Trustee and the
Holders to effect such changes to the Indenture as may be required for
the Indenture to be so qualified in accordance with the terms of the
TIA and execute, and use its best efforts to cause the Trustee to
execute, all documents as may be required to effect such changes, and
all other forms and documents required to be filed with the Commission
to enable the Indenture to be so qualified in a timely manner;
(m) in the case of a Shelf Registration, enter into such
agreements (including underwriting agreements) as are customary in
underwritten public offerings and take all such other appropriate
actions as are reasonably requested in
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<PAGE> 16
order to expedite or facilitate the registration or the disposition of
such Registrable Securities, and in such connection, whether or not an
underwriting agreement is entered into and whether or not the
registration is an underwritten registration: (i) make such
representations and warranties to Holders of such Registrable
Securities and the underwriters (if any), with respect to the business
of the Issuers and their respective subsidiaries and the Registration
Statement, the Prospectus and all documents, if any, incorporated or
deemed to be incorporated by reference therein, in each case, as are
customarily made by issuers to underwriters in underwritten public
offerings, and confirm the same if and when reasonably requested; (ii)
obtain customary opinions of counsel to the Issuers and updates thereof
in form and substance reasonably satisfactory to the managing
underwriters (if any) and the Holders of a majority in principal amount
at maturity of the Registrable Securities being sold, addressed to each
selling Holder and the underwriters (if any) covering the matters
customarily covered in opinions requested in underwritten public
offerings and such other matters as may be reasonably requested by such
Holders and underwriters; (iii) obtain "cold comfort" letters and
updates thereof in form and substance reasonably satisfactory to the
managing underwriters from the independent certified public accountants
of the Issuers (and, if necessary, any other independent certified
public accountants of any subsidiary of the Issuers or of any business
acquired or to be acquired by the any of the Issuers for which
financial statements and financial data are, or are required to be,
included in the Registration Statement), addressed to the selling
Holders of Registrable Securities and to each of the underwriters, such
letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with
underwritten public offerings; and (iv) if an underwriting agreement is
entered into, cause the same to contain indemnification provisions and
procedures no less favorable than those set forth in Section 4 hereof
(or such other provisions and procedures acceptable to Holders of a
majority in aggregate principal amount of Registrable Securities
covered by such Registration Statement and the managing underwriters or
agents) with respect to all parties to be indemnified pursuant to said
Section. The above shall be done at each closing under such
underwriting agreement, or as and to the extent required thereunder;
(n) if (A) a Shelf Registration is filed pursuant to Section
2(b) or (B) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2(a) is required to be delivered
under the Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, make available for
inspection by any selling Holder of such Registrable Securities being
sold, or each such Participating Broker-Dealer, as the case may be, any
underwriter participating in any such disposition of Registrable
Securities, if any, and any attorney, accountant or other agent
retained by any such selling Holder or each such Participating
Broker-Dealer, as the case may be, or underwriter (collectively, the
"Inspectors"), at the offices where normally kept, during
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<PAGE> 17
reasonable business hours, all financial and other records, pertinent
corporate documents and properties of the Issuers and their respective
subsidiaries (collectively, the "Records") as shall be reasonably
necessary to enable them to exercise any applicable due diligence
responsibilities, and cause the officers, directors and employees of
the Issuers and their respective subsidiaries to supply all information
in each case reasonably requested by any such Inspector in connection
with such Registration Statement. Records which the Issuers determine,
in good faith, to be confidential and as to which they notify the
Inspectors are confidential shall not be disclosed by the Inspectors
unless, after prior consultation with the Issuers, (i) the disclosure
of such Records is necessary to avoid or correct a material
misstatement or omission in such Registration Statement, (ii) the
release of such Records is ordered pursuant to an effective subpoena or
other order from a court of competent jurisdiction or (iii) the infor
mation in such Records has been made generally available to the public,
other than as a result of a breach of confidentiality or secrecy to the
Issuers. Each selling Holder of such Registrable Securities and each
such Participating Broker-Dealer will be required to agree that
information obtained by it as a result of such inspections shall be
deemed confidential and shall not be used by it as the basis for any
market transactions in the securities of the Issuers unless and until
such is made generally available to the public, other than as a result
of a breach of confidentiality or secrecy to the Issuers. Each selling
Holder of such Registrable Securities and each such Participating
Broker-Dealer will be required to further agree that it will, upon
learning that disclosure of such Records is sought in a court of
competent jurisdiction or is otherwise required in the opinion of such
Par ticipating Broker-Dealer, give notice to the Issuers and allow the
Issuer at their expense to undertake appropriate action to prevent
disclosure of the Records deemed confidential;
(o) comply with all applicable rules and regulations of the
Commission and, as soon as reasonably practicable, make generally
available to the Holders earnings statements of the Company covering at
least 12 months satisfying the provisions of Section 11(a) of the Act
and Rule 158 thereunder (or any similar rule promulgated under the
Act);
(p) upon consummation of an Exchange Offer or a Private
Exchange, obtain an opinion of counsel to the Issuers addressed to the
Trustee for the benefit of all Holders of Registrable Securities
participating in the Exchange Offer or the Private Exchange, as the
case may be, and which includes an opinion that (i) the Company has
duly authorized, executed and delivered the Exchange Notes and Private
Exchange Notes and the Indenture, as the case may be, (ii) each of the
Guarantors has duly authorized, executed and delivered the guarantees
of the Exchange Note and Private Exchange Notes and the Indenture, as
the case may be, and (iii) each of the Exchange Notes or the Private
Exchange Notes and the
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Indenture, as the case may be, constitute a legal, valid and binding
obligation of each of the Issuers, enforceable against each of them in
accordance with its respective terms (in each case, with customary
exceptions);
(q) if an Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Registrable Securities by Holders to
the Company (or to such other Person as directed by the Company) in
exchange for the Exchange Notes or the Private Exchange Notes, as the
case may be, the Company shall mark, or cause to be marked, on such
Registrable Securities delivered by such Holders that such Registrable
Securities are being cancelled in exchange for the Exchange Notes or
the Private Exchange Notes, as the case may be; in no event shall such
Registrable Securities be marked as paid or otherwise satisfied;
(r) cooperate with each seller of Registrable Securities
covered by any Registration Statement and each underwriter, if any,
participating in the disposition of such Registrable Securities and
their respective counsel in connection with any filings required to be
made with the NASD;
(s) use its best efforts to take all other steps necessary to
effect the registration of the Registrable Securities covered by a
Registration Statement contemplated hereby;
(t) (A) in the case of the Exchange Offer Registration
Statement (i) include in the Exchange Offer Registration Statement a
section entitled "Plan of Distribution," which section shall be
reasonably acceptable to the Initial Purchaser or another
representative of the Participating Broker-Dealers, and which shall
contain a summary statement of the positions taken or policies made by
the staff of the Commission with respect to the potential "underwriter"
status of any broker-dealer (a "Participating Broker-Dealer") that
holds Registrable Securities acquired for its own account as a result
of market-making activities or other trading activities and that will
be the beneficial owner (as defined in Rule 13d-3 under the Exchange
Act) of Exchange Notes to be received by such broker-dealer in the
Exchange Offer, whether such positions or policies have been publicly
disseminated by the staff of the Commission or such positions or
policies, in the reasonable judgment of the Initial Purchaser or such
other representative, represent the prevailing views of the staff of
the Commission, including a statement that any such broker-dealer who
receives Exchange Notes for Registrable Securities pursuant to the
Exchange Offer may be deemed a statutory underwriter and must deliver a
prospectus meeting the requirements of the Act in connection with any
resale of such Exchange Notes, (ii) furnish to each Participating
Broker-Dealer who has delivered to the Company the notice referred to
in Section 3(e), without charge, as many copies of each Prospectus
included in the Exchange Offer Registration Statement, including any
preliminary prospectus, and any amendment
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or supplement thereto, as such Participating Broker-Dealer may
reasonably request, (iii) subject to the last paragraph of this Section
3, hereby consent to the use of the Prospectus forming part of the
Exchange Offer Registration Statement or any amendment or supplement
thereto, by any Person subject to the prospectus delivery requirements
of the Commission, including all Participating Broker-Dealers, in
connection with the sale or transfer of the Exchange Notes covered by
the Prospectus or any amendment or supplement thereto, (iv) use its
best efforts to keep the Exchange Offer Registration Statement
effective and to amend and supplement the Prospectus contained therein,
in order to permit such Prospectus to be lawfully delivered by all
Persons subject to the prospectus delivery requirements of the Act for
such period of time as such Persons must comply with such requirements
in order to resell the Exchange Notes (provided, however, that such
period shall not be required to exceed 180 days, or such longer period
if extended pursuant to the last sentence of this Section 3 (the
"Applicable Period")), and (v) include in the transmittal letter or
similar documentation to be executed by an exchange offeree all
necessary information for such offeree to participate in the Exchange
Offer;
(B) in the case of any Exchange Offer Registration Statement,
each of the Issuers agrees to deliver to the Initial Purchaser or to
another representative of the Participating Broker-Dealers on behalf of
the Participating Broker-Dealers upon consummation of the Exchange
Offer (i) an opinion of counsel substantially in the form attached
hereto as Exhibit A, (ii) Officer's Certificates containing
certifications substantially similar to those set forth in Section 8.5
of the Purchase Agreement and such additional certifications as are
customarily delivered in a public offering of debt securities, and
(iii) comfort letters in customary form permitted by Statement of
Auditing Standards No. 72 of the American Institute of Certified Public
Accountants (or any successor statement).
The Company may require each seller of Registrable Securities
as to which any registration is being effected to furnish to the Company such
information regarding such seller and the proposed distribution of such
Registrable Securities as the Company may from time to time reasonably request
in writing. The Issuers may exclude from such registration the Registrable
Securities of any seller who unreasonably fails to furnish such information
within a reasonable time after receiving such request.
In the case of (i) a Shelf Registration Statement or (ii)
Participating Broker-Dealers who have notified the Company that they will be
utilizing the Prospectus contained in the Exchange Offer Registration Statement
as provided in Section 3(t) hereof and are seeking to sell Exchange Notes and
are required to deliver copies of such Prospectus, each Holder agrees that, upon
receipt of any notice from the Company of the happening of any event of the kind
described in Section 3(e)(ii), 3(e)(iii), 3(e)(iv), 3(e)(v), 3(e)(vi) or
3(e)(vii) hereof, such Holder will forthwith discontinue disposition of
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Registrable Securities pursuant to a Registration Statement until such Holder's
receipt of the copies of the supplemented or amended Prospectus contemplated by
Section 3(i) hereof or until it is advised in writing by the Company that the
use of the applicable Prospectus may be resumed, and, if so directed by the
Company, such Holder will deliver to the Company (at the Company's expense) all
copies in such Holder's possession, other than permanent file copies then in
such Holder's possession, of the Prospectus covering such Registrable Securities
or Exchange Notes, as the case may be, current at the time of receipt of such
notice. If the Company shall give any such notice to suspend the disposition of
Registrable Securities or Exchange Notes, as the case may be, pursuant to a
Registration Statement as a result of the happening of any event of the kind
described in Section 3(e)(ii), 3(e)(iii), 3(e)(iv), 3(e)(v), 3(e)(vi) or
3(e)(vii) hereof, each of the Issuers shall use its best efforts to file and
have declared effective (if an amendment) as soon as practicable an amendment or
supplement to the Registration Statement and shall extend the period during
which such Registration Statement shall be maintained effective pursuant to this
Agreement by the number of days in the period from and including the date of the
giving of such notice to and including the date when the Issuers shall have made
available to the Holders copies of the supplemented or amended Prospectus
necessary to resume such dispositions or shall have advised the Holders in
writing that the use of the applicable Prospectus may be resumed.
4. Indemnification and Contribution. (a) Each of the Issuers,
jointly and severally, shall indemnify and hold harmless the Initial Purchaser,
each Holder, each Participating Broker-Dealer, each underwriter who participates
in an offering of Registrable Securities, each of their respective affiliates,
each Person, if any, who controls any of such parties within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, and each of their
respective directors, officers, partners, employees, representatives and agents,
to the fullest extent lawful as follows:
(i) from and against any and all loss, liability, claim,
damage and expense whatsoever, joint or several, as incurred, arising
out of any untrue statement or alleged untrue statement of a material
fact contained in any Reg istration Statement or any amendment thereto
pursuant to which the offer and sale of the Registrable Securities or
Exchange Notes were registered under the Act including all documents
incorporated therein by reference, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary
to make the statements therein not misleading, or arising out of any
untrue statement or alleged untrue statement of a material fact
contained in any Prospectus or any amendment or supplement thereto, or
the omission or alleged omission therefrom of a material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
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(ii) from and against any and all loss, liability, claim,
damage and expense whatsoever, joint or several, as incurred, to the
extent of the aggregate amount paid in settlement of any litigation, or
any investigation or proceeding by any court or governmental agency or
body, whether commenced or threatened, or of any claim whatsoever based
upon any such untrue statement or omission, or any such alleged untrue
statement or omission, if and only if such settlement is effected with
the prior written consent of the Company; and
(iii) from and against any and all expenses whatsoever
(including reasonable fees and disbursements of counsel chosen by such
Initial Purchaser, Holder, Participating Broker-Dealer or underwriter
(except to the extent otherwise expressly provided in Section 4(c)
hereof)), as incurred, reasonably incurred in investigating, preparing
for or defending against any litigation, or any investigation or
proceeding by any court or governmental agency or body, whether
commenced or threatened, and any amount paid in settlement thereof, or
any other claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, to the
extent that any such expense is not paid under subparagraph (i) or (ii)
of this Section 4(a);
provided, however, that this indemnity does not apply to any loss, liability,
claim, damage or expense to the extent arising out of an untrue statement or
omission or alleged untrue statement or omission (i) made solely in reliance
upon and in conformity with written information furnished to the Company by the
Initial Purchaser, such Holder, such Partici pating Broker-Dealer or any
underwriter relating specifically to such Person in writing expressly for use in
the Registration Statement (or any amendment thereto) or any Prospectus (or any
amendment or supplement thereto) or (ii) contained in any preliminary prospectus
or any Prospectus if the Initial Purchaser, such Holder, such Participating
Broker-Dealer or such underwriter failed to send or deliver a copy of the
Prospectus (as then amended or supplemented if the Issuers shall have timely
furnished any amendments or supplements thereto) to the Person asserting such
losses, liabilities, claims or damages on or prior to the delivery of written
confirmation of any sale of securities covered thereby to such Person in any
case where such delivery is required by the Act and a court of competent
jurisdiction in a judgment not subject to appeal or final review shall have
deter mined that such Prospectus (as so amended or supplemented) would have
corrected such untrue statement or omission and the delivery thereof would have
eliminated such losses, claims, damages or liabilities.
(b) Each Holder agrees, severally and not jointly, to
indemnify and hold harmless each of the Issuers, the Initial Purchaser, each
underwriter who participates in an offering of Registrable Securities and the
other selling Holders and each of their respective directors, officers
(including each officer of the Company who signed the Registration Statement),
employees, representatives and agents, and each Person, if any, who controls any
of the Issuers, the Initial Purchaser, any underwriter or any other selling
Holder within
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the meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and
against any and all loss, liability, claim, damage and expense whatsoever
described in the indemnity contained in Section 4(a) hereof, as reasonably
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto) or any Prospectus (or any amendment or supplement thereto)
solely in reliance upon and in conformity with written information furnished to
the Company by such selling Holder relating to such Holder expressly for use in
the Registration Statement (or any amendment thereto) or any such Prospectus (or
any amendment or supplement thereto); provided, however, that, in the case of a
Shelf Registration Statement, no such Holder shall be liable for any claims
hereunder in excess of the amount of net proceeds received by such Holder from
the sale of Registrable Securities pursuant to such Shelf Registration
Statement.
(c) Each indemnified party shall give prompt notice to each
indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, enclosing a copy of all papers properly
served on such indemnified party (but failure to notify an indemnifying party
shall not relieve such indemnifying party from any liability hereunder to the
extent it is not materially prejudiced as a result thereof and in any event
shall not relieve it from any liability which it may have other than on account
of this indemnity agreement). An indemnifying party may participate, at its own
expense, in the defense of any such action. If an indemnifying party so elects
within a reasonable time after receipt of such notice, such indemnifying party,
jointly with any other indemnifying party, may assume the defense of such action
with counsel chosen by it and reasonably satisfactory to the indemnified parties
defendant in such action; provided, however, that if any such indemnified party
reasonably determines, upon written advice of counsel, that there may be legal
defenses available to such indemnified party which are different from or in
addition to those available to such indemnifying party or that representation of
such indemnifying party and any indemnified party by the same counsel would
present a conflict of interest, then such indemnifying party or parties shall
not so be entitled to assume such defense. If an indemnifying party is not so
entitled to assume the defense of such action or fails to timely assume such
defense with counsel reasonably satisfactory to the indemnified parties, counsel
for such indemnifying party shall be entitled to conduct the defense of such
indemnifying party and counsel for each indemnified party or parties shall be
entitled to conduct the defense of such indemnified party or parties. If an
indemnifying party assumes the defense of an action in accordance with and as
permitted by the provisions of this Section 4(c), such indemnifying party shall
not be liable for any fees and expenses of counsel for the indemnified parties
incurred thereafter in connection with such action unless otherwise agreed to by
the indemnifying party. In no event shall the indemnifying party or parties be
liable for the fees and expenses of more than one counsel for all indemnified
parties in connection with any one action, or separate but similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances. No indemnifying party shall, without the prior written consent of
the indemnified parties, which consent shall not be unreasonably withheld,
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<PAGE> 23
settle or compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 4, unless
such settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and does not include a statement as to or an
admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(d) Notwithstanding any payment or payments made by any of the
Issuers hereunder, each of the Issuers hereby expressly waives subrogation to,
and agrees that it shall not be entitled to be subrogated to, any of the rights
of any indemnified party against each of the Issuers or any other right of
offset held by any indemnified party for the payment of any amounts owed to any
indemnified party pursuant to this Section 4; provided, however, that if any of
the foregoing provisions of this paragraph are held to be contrary to applicable
law or unenforceable by a court of competent jurisdiction, each of the Issuers
hereby expressly agrees that any right of subrogation or contribution that the
any of the Issuers may have as a result of such applicable law or
unenforceability, as the case may be, shall be subordinate in right of payment
to the payment in full in cash of all amounts owed to any indemnified party
pursuant to this Section 4.
(e) If the indemnification provided for in this Section 4 is
for any reason unavailable to or insufficient to hold harmless an indemnified
party in respect of any losses, liabilities, claims, damages or expenses
referred to therein, then each indemnifying party shall contribute to the
aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the indemnifying party
or parties on the one hand and the indemnified party or parties on the other
hand from the offering of the Notes pursuant to the Purchase Agreement, or (ii)
if the allocation provided by clause (i) is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the indemnifying
party or parties on the one hand and of the indemnified party or parties on the
other hand in connection with the statements or omissions which resulted in such
losses, liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
The relative benefits received by the Issuers on the one hand
and the Initial Purchaser on the other hand in connection with the offering of
the Notes pursuant to the Purchase Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the Notes
pursuant to the Purchase Agreement (before deducting expenses) received by the
Company and the total discount received by the Initial Purchaser bear to the
aggregate initial offering price of the Notes.
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<PAGE> 24
The relative fault of the Issuers on the one hand and the
Holders on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Issuers or by the Holders, and the respective parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Issuers and the Holders agree that it would not be just
and equitable if contribution pursuant to this Section 4 were determined by pro
rata allocation (even if the Holders were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 4(e). The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 4(e) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing for or defending against any litigation, or
any investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 4(e), the
Initial Purchaser shall not be required to contribute any amount in excess of
the amount by which the total discount received by the Initial Purchaser in
respect of the purchase price of the Notes purchased by it from the Issuers
exceeds the amount of any damages which the Initial Purchaser has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission.
No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 4(e), each person, if any, who
controls the Initial Purchaser within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act shall have the same rights to contribution as the
Initial Purchaser, and each director of each of the Issuers and each officer of
each of the Issuers who signed the Registration Statement and each person, if
any, who controls any of the Issuers within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act shall have the same rights to contribution as
the Issuers.
5. Participation in Underwritten Registrations. No Holder may
participate in any underwritten registration hereunder unless such Holder (a)
agrees to sell such Holder's Registrable Securities on the basis provided in any
customary underwriting arrangements approved by the Persons entitled hereunder
to approve such arrangements and (b) completes and executes all reasonable
questionnaires, powers of attorney,
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<PAGE> 25
indemnities, underwriting agreements, lock-up letters and other documents
reasonably required in connection with such underwriting arrangements.
6. Selection of Underwriters. In any underwritten offering,
the underwriter or underwriters and manager or managers that will administer the
offering will be selected by the Holders of a majority in aggregate principal
amount of the Registrable Securities included in such offering; provided,
however, that such underwriters and managers must be reasonably satisfactory to
the Company.
7. Miscellaneous.
(a) No Inconsistent Agreements. None of the Issuers shall have
entered into nor will any of the Issuers on or after the date of this Agreement
enter into any agreement that is inconsistent with the rights granted to the
Holders of Registrable Securities in this Agreement or otherwise conflicts with
the provisions hereof. Except as disclosed on the Offering relating to the
issuance of the Notes, none of the Issuers has previously entered into any
agreement granting any registration or similar rights with respect to its
securities to any person. The rights granted to the Holders hereunder do not in
any way conflict with and are not inconsistent with the rights granted to the
holders of any of the Issuer's other issued and outstanding securities, if any,
under any agreement in effect on the date hereof.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Issuers have obtained the written consent of
Holders of at least a majority of the then outstanding aggregate principal
amount of the Registrable Securities; provided, however, that no amendment,
modification or supplement or waiver or consent to the departure with respect to
the provisions of Section 4 hereof shall be effective as against any Holder of
Registrable Securities unless consented to in writing by such Holder of
Registrable Securities. Each of the Issuers agrees that it shall not pay any fee
to any Holder of Registrable Securities in connection with any solicitation for
the modification, amendment, supplement or waiver or consent of this Agreement,
unless such fee is offered to be paid on a pro rata basis to all the Holders of
Registrable Securities in connection with such solicitation.
(c) Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if sent by
registered or certified mail, postage prepaid, sent by any national courier
service guaranteeing overnight delivery or transmitted by any standard form of
facsimile telecommunication, as follows: (i) if to a Holder, at the most current
address given by such Holder to the Company in accordance with the provisions of
this Section 7(c), which address, with respect to the Initial Purchaser, shall
initially be the address provided for the Initial Purchaser in the Purchase
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<PAGE> 26
Agreement; and (ii) if to any of the Issuers, at its address as set forth in the
Purchase Agreement, or at such other address provided in accordance with the
provisions of this Section 7(c).
All such notices and communications shall be deemed to have
been duly given at the earlier of: (i) the time of actual receipt by the
addressee; or (ii) the time delivered, if personally delivered, or five business
days after being sent by registered or certified mail, postage prepaid, if
mailed, or when answered back, if telexed, or when transmission is confirmed, if
telecopied, or on the next business day, if timely delivered to a national
courier service guaranteeing overnight delivery.
Copies of all notices, demands, or other communications shall
be concurrently delivered by the Person giving the same to the Trustee at its
address specified in the Indenture.
(d) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of the
Initial Purchaser, including, without limitation and without the need for an
express assignment, subsequent Holders; provided, however, that nothing herein
shall be deemed to permit any assignment, transfer or other disposition of
Registrable Securities in violation of the terms of the Purchase Agreement or
the Indenture. If any transferee of any Holder shall acquire Registrable
Securities, in any manner, whether by operation of law or otherwise, such
Registrable Securities shall be held subject to all of the terms of this
Agreement, and by taking and holding such Registrable Securities, such Person
shall be conclusively deemed to have agreed to be bound by and to perform all of
the terms and provisions of this Agreement and such Person shall be entitled to
receive the benefits hereof.
(e) Third Party Beneficiary. The Holders shall be third party
beneficiaries of the agreements made hereunder between the Issuers, on the one
hand, and the Initial Purchaser, on the other hand, and the Holders shall have
the right to enforce such agreements directly to the extent they deem such
enforcement necessary or advisable to protect their rights or the rights of any
of the other Holders.
(f) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(g) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAWS.
(h) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or
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<PAGE> 27
unenforceable, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions contained herein shall
not be affected or impaired thereby.
(i) Notes Held by the Company or its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by any of the
Issuers or any affiliate of any of the Issuers (as such term is defined in Rule
405 under the Act) shall not be counted in determining whether such consent or
approval was given by the Holders of such required percentage.
(j) Counterparts. This Agreement may be executed in one or
more counterparts and, when so executed, all such counterparts taken together
shall constitute one and the same agreement.
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<PAGE> 28
IN WITNESS WHEREOF, the parties hereto have executed this
Registration Rights Agreement as of the date first written above.
TELEHUB COMMUNICATIONS CORPORATION
By:
------------------------------------
Name: Donald H. Sledge
Title: President & Chief
Executive Officer
TELEHUB TECHNOLOGIES CORPORATION
By:
------------------------------------
Name: Donald H. Sledge
Title: Chief Executive Officer
TELEHUB NETWORK SERVICES CORPORATION
By:
------------------------------------
Name: Donald H. Sledge
Title: Chief Executive Officer
TELEHUB LEASING CORPORATION
By:
------------------------------------
Name: Donald H. Sledge
Title: President
Accepted as of the date first above written:
BANCBOSTON SECURITIES INC.
By:
----------------------------------
Name: Reid Funston
Title: Director
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<PAGE> 29
Exhibit A
Form of Opinion of Counsel
1. Each of the Exchange Offer Registration Statement and the
Prospectus (other than the financial statements, notes or schedules thereto and
other financial and statistical data and supplemental schedules included or
referred to therein or omitted therefrom and the Form T-l, as to which such
counsel need express no opinion), complies as to form in all material respects
with the applicable requirements of the Act and the applicable rules and
regulations promulgated under the Act.
2. In the course of such counsel's review and discussion of
the contents of the Exchange Offer Registration Statement and the Prospectus
with certain officers and other representatives of the Issuers and
representatives of the independent certified public accountants of the Issuers,
but without independent check or verification or responsibility for the
accuracy, completeness or fairness of the statements contained therein, on the
basis of the foregoing (relying as to materiality to a large extent upon
representations and opinions of officers and other representatives of the
Issuers), no facts have come to such counsel's attention which cause such
counsel to believe that the Exchange Offer Registration Statement (other than
the financial statements, notes and schedules thereto and other financial and
statistical information contained or referred to therein and the Form T-1, as to
which such counsel need express no belief), at the time the Exchange Offer
Registration Statement became effective, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements contained therein not misleading, or that
the Prospectus (other than the financial statements, notes and schedules thereto
and other financial and statistical information contained or referred to
therein, as to which such counsel need express no belief) at the time the
Registration Statement became effective or as of the date of the opinion,
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained therein, in the light of the
circumstances under which they were made, not misleading.
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<PAGE> 1
EXHIBIT 10.1
TELEHUB COMMUNICATIONS CORPORATION
$125,000,000
125,000 Units Consisting of 13 7/8% Senior Discount Notes Due 2005
and Warrants to Purchase 2,082,732 Shares of Common Stock
PURCHASE AGREEMENT
July 27, 1998
New York, New York
BANCBOSTON SECURITIES INC.
100 Federal Street
Boston, Massachusetts 02110
Ladies and Gentlemen:
TeleHub Communications Corporation, a Nevada corporation (the "Company"),
proposes to issue and sell to BancBoston Securities Inc. (the "Initial
Purchaser") 125,000 units (collectively, the "Units"), each consisting of
$1,000 principal amount at maturity of 13 7/8% Senior Discount Notes due 2005
(collectively, with the Guarantees referred to below, the "Series A Notes") and
one warrant (each a "Warrant"), each Warrant initially entitling the holder
thereof to purchase 16.661856 shares of common stock, par value $0.001 per
share (the "Common Stock" and such shares of Common Stock underlying the
Warrants are herein referred to as the "Warrant Shares"), of the Company,
subject to the terms and conditions set forth herein. The Series A Notes will
be issued pursuant to an indenture (the "Indenture"), to be dated the Closing
Date (as defined), among the Company, the Guarantors (as defined) and State
Street Bank and Trust Company, as trustee (the "Trustee"). The Notes (as
defined) will be fully and unconditionally guaranteed (the "Guarantees") as to
payment of principal, interest, liquidated damages and premium, if any, on a
senior unsecured basis, jointly and severally, by each of TeleHub Technologies
Corporation, TeleHub Leasing Corporation and TeleHub Network Services
Corporation (collectively, the "Guarantors"). The Warrants are to be issued
pursuant to a Warrant Agreement dated as of July 30,1998 (the "Warrant
Agreement") between the Company and State Street Bank and Trust Company, as
warrant agent (the "Warrant Agent"). The Series A Notes and the Warrants will
not trade separately until the earliest to occur of (i) October 30,1998; (ii) a
Change of Control; (iii) the occurrence of an Event of Default; (iv) the date
on which a registration with respect to the Series A Notes or an Exchange Offer
for the Notes is declared effective; or (v) such earlier date as determined by
the Initial Purchaser (such earliest date, the "Separation Date"). The Units,
the Series A Notes and the Warrants are more fully described in the Offering
Memorandum described below. The Series A Notes and the 13 7/8% Senior Discount
Notes due 2005 (the "Series B Notes") issuable in exchange therefore are
collectively referred to herein as the "Notes." The Units, the Notes, together
with the Guarantees, and the Warrants are collectively referred to herein as
the "Securities."
<PAGE> 2
The offering of the Securities by the Company is referred to herein as the
"Offering." Capitalized terms used but not otherwise defined herein shall have
the meanings given to such terms in the Indenture, the Warrant Agreement and
the Registration Rights Agreement (as defined below), as the case may be.
1. Issuance of Securities. Upon original issuance thereof, and until such
time as the same is no longer required under the applicable requirements of the
Securities Act of 1933, as amended (the "Act"), the Units, the Notes, the
Warrants and the Warrant Shares (and all securities issued in exchange therefor
or in substitution thereof) shall bear the following legend:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED
IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE
SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY
NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE
PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A
THEREUNDER. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A)
IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT), (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) OR
(C) IT IS NOT A U.S. PERSON AND IS NOT ACQUIRING THIS SECURITY FOR THE
ACCOUNT OR BENEFIT OF A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES
ACT. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT
OF THE COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED, ONLY (1)(a) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS
A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT), IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A,
(b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT
OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL
IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY, (3) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH
CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY
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<PAGE> 3
STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B)
THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE
RESTRICTIONS SET FORTH IN (A) ABOVE."
2. Offering. The Units will be offered and sold to the Initial Purchaser
pursuant to an exemption from the registration requirements under the Act. The
Company and the Guarantors have prepared a preliminary offering memorandum,
dated July 6, 1998 (the "Preliminary Offering Memorandum"), and a final
offering memorandum, dated July 27, 1998 (the "Offering Memorandum"), relating
to the Company, its subsidiaries and the Units.
The Initial Purchaser has advised the Company and the Guarantors that the
Initial Purchaser will make offers (the "Exempt Resales") of the Units on the
terms set forth in the Offering Memorandum, as amended or supplemented, solely
to (i) persons whom the Initial Purchaser reasonably believes to be "qualified
institutional buyers," as defined in Rule 144A under the Act ("QIBs") and (ii)
non-U.S. persons outside the United States in reliance upon Regulation S
("Regulation S") under the Act (each, a "Reg S Investor"). The QIBs and Reg S
Investors are collectively referred to herein as the "Eligible Purchasers."
The Initial Purchaser will offer the Units to such Eligible Purchasers
initially at the price set forth on the cover of the Offering Memorandum. Such
price may be changed at any time without notice.
Holders (including subsequent transferees) of the Series A Notes will have
the registration rights set forth in the registration rights agreement relating
thereto (the "Registration Rights Agreement"), to be dated the Closing Date and
substantially in the form of Exhibit A hereto, for so long as such Series A
Notes constitute "Transfer Restricted Securities" (as defined in the
Registration Rights Agreement). Pursuant to the Registration Rights Agreement,
the Company and the Guarantors will agree to file with the United States
Securities and Exchange Commission (the "Commission"), under the circumstances
set forth therein, (i) a registration statement under the Act (the "Exchange
Offer Registration Statement") relating to the Series B Notes to be offered in
exchange for the Series A Notes (the "Exchange Offer") and (ii) under certain
circumstances, a shelf registration statement pursuant to Rule 415 under the
Act (the "Shelf Registration Statement" and, together with the Exchange Offer
Registration Statement, the "Registration Statements") relating to the resale
by certain holders of the Series A Notes, and to use their best efforts to
cause such Registration Statements to be declared effective and to consummate
the Exchange Offer.
Holders (including subsequent transferees) of the Warrants will have the
registration rights set forth in the warrant registration rights agreement (the
"Warrant Registration Rights Agreement"), to be dated the Closing Date and
substantially in the form of Exhibit B hereto), for so long as such Warrants
or any Warrant Shares constitute "Transfer Restricted Securities" (as defined
in the Warrant Registration Rights Agreement).
This Agreement, the Securities, the Warrant Shares, the Indenture, the
Warrant Agreement, the Registration Rights Agreement, and the Warrant
Registration Rights Agreement are hereinafter referred to collectively as the
"Operative Documents."
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<PAGE> 4
The Company hereby agrees to pay to the Initial Purchaser a financial
advisory fee of $1.4 million, which may be deducted by the Initial Purchaser
from the proceeds due the Company pursuant to Section 3.
3. Purchase, Sale and Delivery.
3.1 On the basis of the representations, warranties and covenants
contained in this Agreement, and subject to its terms and conditions, each
of the Company and the Guarantors agrees to issue and sell to the Initial
Purchaser, and the Initial Purchaser agrees to purchase from the Company,
125,000 Units. The purchase price for the Units will be 64.503% of the
principal amount at maturity of the Series A Notes. In connection with
the Offering the Company agrees to reimburse the Initial Purchaser for up
to $538,119 of its expenses.
3.2 Delivery of the Units shall be made, against payment of the
purchase price therefor, at the offices of Paul, Hastings, Janofsky &
Walker LLP, New York, New York or such other location as may be mutually
acceptable. Such delivery and payment shall be made at 9:00 a.m., New
York City time, on July 30, 1998 or at such other time as shall be agreed
upon by the Initial Purchaser, the Company and the Guarantors. The time
and date of such delivery and payment are herein called the "Closing
Date."
3.3 On the Closing Date, one or more Units in definitive form,
registered in the name of Cede & Co., as nominee of The Depository Trust
Company ("DTC"), having an aggregate amount corresponding to the aggregate
amount of Units sold pursuant to Exempt Resales to Eligible Purchasers
(collectively, the "Global Unit"), each Global Unit consisting of
$125,000,000 aggregate principal amount at maturity of Notes in definitive
form registered in the name of Cede & Co., as nominee of DTC (the "Global
Note"), and one Warrant in definitive form to purchase 2,082,732 shares of
Common Stock, registered in the name of Cede & Co., as nominee of DTC (the
"Global Warrant") shall be delivered by the Company and the Guarantors to
the Initial Purchaser (or as the Initial Purchaser directs), against
payment by the Initial Purchaser of the purchase price therefor, by wire
transfer of same day funds, to an account designated by the Company,
provided that the Company shall give at least two business days' prior
written notice to the Initial Purchaser of the information required to
effect such wire transfer. The Global Unit shall be made available to the
Initial Purchaser for inspection not later than 9:30 a.m. on the business
day immediately preceding the Closing Date.
4. Agreements of the Company and the Guarantors. The Company and the
Guarantors, jointly and severally, covenant and agree with the Initial
Purchaser as follows:
4.1 To advise the Initial Purchaser promptly and, if requested by the
Initial Purchaser, confirm such advice in writing, (i) of the issuance by
any state securities commission of any stop order suspending the
qualification or exemption from qualification of any Securities for
offering or sale in any jurisdiction, or the initiation
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<PAGE> 5
of any proceeding for such purpose by any state securities commission or
other regulatory authority and (ii) of the happening of any event that
makes any statement of a material fact made in the Preliminary Offering
Memorandum or the Offering Memorandum untrue or that requires the making
of any additions to or changes in the Preliminary Offering Memorandum or
the Offering Memorandum in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading. The
Company and the Guarantors shall use their best efforts to prevent the
issuance of any stop order or order suspending the qualification or
exemption of any Securities under any state securities or Blue Sky laws
and, if at any time any state securities commission or other regulatory
authority shall issue an order suspending the qualification or exemption
of any Securities under any state securities or Blue Sky laws, the Company
and the Guarantors shall use their best efforts to obtain the withdrawal
or lifting of such order at the earliest possible time.
4.2 To furnish the Initial Purchaser and those persons identified by
the Initial Purchaser to the Company, without charge, as many copies of
the Preliminary Offering Memorandum and the Offering Memorandum, including
all documents incorporated therein by reference, and any amendments or
supplements thereto, as the Initial Purchaser may reasonably request. The
Company and the Guarantors consent to the use of the Preliminary Offering
Memorandum and the Offering Memorandum, and any amendments and supplements
thereto required pursuant hereto, by the Initial Purchaser in connection
with Exempt Resales.
4.3 Not to amend or supplement the Preliminary Offering Memorandum or
the Offering Memorandum prior to the Closing Date unless the Initial
Purchaser shall previously have been advised thereof and shall not have
objected thereto within a reasonable time after being furnished a copy
thereof. The Company and the Guarantors shall promptly prepare, upon the
Initial Purchaser's request, any amendment or supplement to the
Preliminary Offering Memorandum or the Offering Memorandum that may be
necessary or advisable in connection with Exempt Resales.
4.4 If, after the date hereof and prior to consummation of any Exempt
Resale, any event shall occur as a result of which, in the judgment of the
Company and the Guarantors or in the reasonable opinion of counsel for the
Company and the Guarantors or counsel for the Initial Purchaser, it
becomes necessary or advisable to amend or supplement the Preliminary
Offering Memorandum or Offering Memorandum in order to make the statements
therein, in the light of the circumstances when such Preliminary Offering
Memorandum or Offering Memorandum is delivered to an Eligible Purchaser
which is a prospective purchaser, not misleading, or if it is necessary or
advisable to amend or supplement the Preliminary Offering Memorandum or
Offering Memorandum to comply with applicable law, (i) to notify the
Initial Purchaser and (ii) forthwith to prepare, at its own expense, an
appropriate amendment or supplement to such Preliminary Offering
Memorandum or Offering Memorandum so that the statements therein as so
amended or supplemented will not, in the light of the circumstances when
it is so delivered, be
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<PAGE> 6
misleading, or so that such Preliminary Offering Memorandum or Offering
Memorandum will comply with applicable law.
4.5 To cooperate with the Initial Purchaser and counsel for the
Initial Purchaser in connection with the qualification or registration of
the Securities under the securities or Blue Sky laws of such jurisdictions
as the Initial Purchaser may reasonably request and to continue such
qualification in effect so long as required for the Exempt Resales;
provided, however, that none of the Company or the Guarantors shall be
required in connection therewith to register or qualify as a foreign
corporation where it is not now so qualified or to take any action that
would subject it to service of process in suits or taxation, in each case,
other than as to matters and transactions relating to the Preliminary
Offering Memorandum, the Offering Memorandum or Exempt Resales, in any
jurisdiction where it is not now so subject.
4.6 Whether or not the transactions contemplated by this Agreement
are consummated or this Agreement becomes effective or is terminated, to
pay all costs, expenses, fees and taxes incident to the performance of the
obligations of the Company and the Guarantors hereunder, including in
connection with: (i) the preparation, printing, and distribution of the
Preliminary Offering Memorandum and the Offering Memorandum (including,
without limitation, financial statements) and all amendments and
supplements thereto required pursuant hereto, (ii) the preparation
(including, without limitation, duplication costs) and delivery of all
agreements, correspondence and all other documents prepared and delivered
in connection herewith and with the Exempt Resales, (iii) the issuance,
transfer and delivery of the Units to the Initial Purchaser, (iv) the
qualification or registration of the Securities for offer and sale under
the securities or Blue Sky laws of the several states (including, without
limitation, the cost of printing and mailing a preliminary and final Blue
Sky Memorandum and the reasonable fees and disbursements of counsel for
the Initial Purchaser relating thereto), (v) furnishing such copies of the
Preliminary Offering Memorandum and the Offering Memorandum, and all
amendments and supplements thereto, as may be requested for use in
connection with Exempt Resales, (vi) the preparation of certificates for
the Securities (including, without limitation, printing and engraving
thereof), (vii) the fees, disbursements and expenses of the Company's and
the Guarantors' counsel and accountants, (viii) all expenses and listing
fees in connection with the application for quotation of the Units in the
PORTAL market, (ix) all fees and expenses (including fees and expenses of
counsel) of the Company in connection with the approval of the Securities
by DTC for "book-entry" transfer, (x) rating the Units by rating agencies,
(xi) the reasonable fees and expenses of the Trustee and its counsel,
(xii) the reasonable fees and expenses of the Warrant Agent and its
counsel, (xiii) the reasonable fees and expenses of the Collateral Agent
and its counsel, (xiv) the performance by the Company and the Guarantors
of their other obligations under this Agreement and the other Operative
Documents and (xv) "road show" travel and other expenses incurred by the
Company in connection with the marketing and sale of the Units.
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<PAGE> 7
4.7 To use the proceeds from the sale of the Units in the manner
described in the Offering Memorandum under the caption "Use of Proceeds."
4.8 Not to voluntarily claim, and to resist actively any attempts to
claim, the benefit of any usury laws against the holders of any
Securities.
4.9 To do and perform all things required to be done and performed
under this Agreement by them prior to or after the Closing Date and to
satisfy all conditions precedent on their part to the delivery of the
Units.
4.10 Not to sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in the Act)
that would be integrated with the sale of the Securities in a manner that
would require the registration under the Act of the sale to the Initial
Purchaser or the Eligible Purchasers of the Units or to take any other
action that would result in the Exempt Resales not being exempt from
registration under the Act.
4.11 For so long as any of the Securities remain outstanding and
during any period in which the Company and the Guarantors are not subject
to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), to make available to any holder or beneficial owner
of Securities in connection with any sale thereof and any prospective
purchaser of such Securities from such holder or beneficial owner, the
information required by Rule 144A(d)(4) under the Act.
4.12 To cause the Exchange Offer to be made in the appropriate form
to permit registered Series B Notes to be offered in exchange for the
Series A Notes and to comply with all applicable federal and state
securities laws in connection with the Exchange Offer.
4.13 To reserve and continue to reserve as long as any Warrants are
outstanding, a sufficient number of shares of Common Stock for issuance
upon exercise of the Warrants.
4.14 To comply with all of their agreements set forth in the
Operative Documents and all agreements set forth in the representation
letters of the Company to DTC relating to the approval of the Securities
by DTC for "book-entry" transfer.
4.15 To effect the inclusion of the Units in the PORTAL Market and to
obtain approval of the Securities by DTC for "book-entry" transfer.
4.16 During a period of three years following the Closing Date, to
deliver without charge to the Initial Purchaser, promptly upon their
becoming available, copies of (i) all reports or other publicly available
information that the Company shall mail or otherwise make available to its
securityholders and (ii) all reports, financial statements and proxy or
information statements filed by the Company with the Commission or any
national securities exchange and such other publicly available
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<PAGE> 8
information concerning the Company or any of its subsidiaries, including
without limitation, press releases.
4.17 Prior to the Closing Date, to furnish to the Initial Purchaser,
as soon as they have been prepared in the ordinary course by the Company
and each Guarantor, copies of any unaudited interim financial statements
for any period subsequent to the periods covered by the financial
statements appearing in the Offering Memorandum.
4.18 Not to take, directly or indirectly, any action designed to, or
that might reasonably be expected to, cause or result in stabilization or
manipulation of the price of any security of the Company or any of the
Guarantors to facilitate the sale or resale of the Securities. Except as
permitted by the Act, none of the Company or the Guarantors will
distribute any (i) preliminary offering memorandum, including, without
limitation, the Preliminary Offering Memorandum, (ii) offering memorandum,
including, without limitation, the Offering Memorandum, or (iii) other
offering material in connection with the offering and sale of the Units.
4.19 To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement prior to the
Closing Date and to satisfy all conditions precedent to the delivery of
the Units.
5. Representations and Warranties and Certain Covenants.
5.1 The Company and the Guarantors, jointly and severally, represent
and warrant to and covenant and agree with the Initial Purchaser that:
5.1.1 The Preliminary Offering Memorandum as of its date does not,
and the Offering Memorandum as of its date and as of the Closing Date does
not and will not, and any supplement or amendment to them will not,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading, except that the representations and warranties
contained in this paragraph shall not apply to statements in or omissions
from the Preliminary Offering Memorandum and the Offering Memorandum (or
any supplement or amendment thereto) made in reliance upon and in
conformity with information relating to the Initial Purchaser furnished to
the Company in writing by the Initial Purchaser expressly for use therein.
No stop order preventing the use of the Preliminary Offering Memorandum
or the Offering Memorandum, or any amendment or supplement thereto, or any
order asserting that any of the transactions contemplated by this
Agreement are subject to the registration requirements of the Act, has
been issued, nor, to the best knowledge of each of the Company and the
Guarantors, is threatened.
5.1.2 Each of the Company and the Guarantors (A) has been duly
incorporated and is validly existing as a corporation in good standing
under the laws
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<PAGE> 9
of its jurisdiction of incorporation, (B) has all requisite corporate
power and authority to carry on its business as it is currently being
conducted and as described in the Offering Memorandum and to own, lease
and operate its properties, and (C) is duly qualified and in good standing
as a foreign corporation, authorized to do business in each jurisdiction
in which the nature of its business or its ownership or leasing of
property requires such qualification, except where the failure to be so
qualified could not reasonably be expected to (x) result, individually or
in the aggregate, in a material adverse effect on the business, prospects,
properties, assets, earnings, operations, results of operations or
condition (financial or otherwise) of the Company or any of its
subsidiaries, (y) interfere with or adversely affect the issuance of the
Securities pursuant hereto or (z) in any manner draw into question the
validity of this Agreement or any other Operative Document or the
transactions described in the Offering Memorandum under the caption "Use
of Proceeds" (any of the events set forth in clauses (x), (y) or (z), a
"Material Adverse Effect").
5.1.3 All of the outstanding shares of capital stock of the Company
are duly and validly authorized and issued, fully paid and nonassessable,
were issued in compliance with all applicable federal and state securities
laws and were not issued in violation of or subject to any preemptive
rights, co-sale rights, registration rights, repurchase rights, right of
first refusal or any other similar right. The Company had, at March 31,
1998, a duly authorized and outstanding capitalization as set forth under
the caption "Capitalization" in the Offering Memorandum. On March 31,
1998, after giving pro forma effect to the issuance and sale of the Units
pursuant hereto and the other transactions referred to therein, the
Company would have had an authorized and outstanding capitalization as set
forth in the Offering Memorandum in the "As Adjusted" column under the
caption "Capitalization."
5.1.4 The Company has no subsidiaries other than the Guarantors.
5.1.5 All of the outstanding capital stock of each subsidiary of the
Company is owned by the Company, free and clear of any security interest,
claim, lien, limitation on voting rights or encumbrance; and all such
securities have been duly authorized, validly issued, and are fully paid
and nonassessable and were not issued in violation of any preemptive or
similar rights. The Company owns no controlling interest in any other
corporation, partnership or other entity and does not directly or
indirectly own any shares of stock or any other securities of any
corporation or have any equity interest in any firm, partnership,
association or other entity, other than minority investments in marketable
securities that may be made in the ordinary course of business as a part
of its investment of excess cash assets.
5.1.6 Other than as set forth in the Preliminary Offering Memorandum
and as will be set forth in the Offering Memorandum there are not
currently any outstanding subscriptions, rights, warrants, calls,
commitments of sale or options to acquire, or instruments convertible into
or exchangeable for, any capital stock or other equity interest of the
Company or any of the Company's subsidiaries.
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<PAGE> 10
5.1.7 When the Securities are issued and delivered pursuant to this
Agreement, none of the Securities will be of the same class (within the
meaning of Rule 144A under the Act) as securities of the Company or of any
of the Guarantors that are listed on a national securities exchange
registered under Section 6 of the Exchange Act or that are quoted in a
United States automated inter-dealer quotation system.
5.1.8 Each of the Company and the Guarantors has all requisite
corporate power and authority to execute, deliver and perform its
obligations under this Agreement and each of the other Operative Documents
to which it is a party and to consummate the transactions contemplated
hereby and thereby, including, without limitation, the corporate power and
authority to issue, sell and deliver the Units as provided herein and
therein.
5.1.9 This Agreement has been duly and validly authorized, executed
and delivered by each of the Company and the Guarantors and is the legal,
valid and binding agreement of each of the Company and the Guarantors,
enforceable against each of them in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization
or similar laws affecting the rights of creditors generally and subject to
general principles of equity.
5.1.10 The Indenture has been duly and validly authorized by each of
the Company and the Guarantors and, when duly executed and delivered by
each of the Company and the Guarantors, will be the legal, valid and
binding obligation of each of the Company and the Guarantors, enforceable
against each of them in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization or similar
laws affecting the rights of creditors generally and subject to general
principles of equity. On the Closing Date, the Indenture will conform in
all material respects to the requirements of the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"), and the rules and
regulations of the Commission applicable to an indenture which is
qualified thereunder. The Offering Memorandum contains a summary of the
terms of the Indenture, which is accurate in all material respects.
5.1.11 The Registration Rights Agreement has been duly and validly
authorized by each of the Company and the Guarantors and, when duly
executed and delivered by each of the Company and the Guarantors, will be
the legal, valid and binding obligation of each of the Company and the
Guarantors, enforceable against each of them in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization or similar laws affecting the rights of creditors generally
and subject to general principles of equity. The Offering Memorandum
contains a summary of the terms of the Registration Rights Agreement,
which is accurate in all material respects.
5.1.12 The Warrant Agreement has been duly and validly authorized by
the Company and, when duly executed and delivered by the Company, will be
the
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<PAGE> 11
legal, valid and binding obligation of the Company, enforceable against it
in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization or similar laws
affecting the rights of creditors generally and subject to general
principles of equity. The Offering Memorandum contains a summary of the
terms of the Warrant Agreement, which is accurate in all material
respects.
5.1.13 The Warrant Registration Rights Agreement has been duly and
validly authorized by the Company and, when duly executed and delivered by
the Company, will be the legal, valid and binding obligation of the
Company, enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization
or similar laws affecting the rights of creditors generally and subject to
general principles of equity. The Offering Memorandum contains a summary
of the terms of the Warrant Registration Rights Agreement, which is
accurate in all material respects.
5.1.14 The Company has duly and validly authorized the Units. The
Series A Notes have been duly and validly authorized by the Company for
issuance and sale to the Initial Purchaser pursuant to this Agreement and,
when issued and authenticated in accordance with the terms of the
Indenture and delivered against payment therefor in accordance with the
terms hereof and thereof, will be the legal, valid and binding obligations
of the Company, enforceable against it in accordance with their terms and
entitled to the benefits of the Indenture, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization or similar
laws affecting the rights of creditors generally and subject to general
principles of equity. The Offering Memorandum contains a summary of the
terms of the Notes, which is accurate in all material respects.
5.1.15 The Series B Notes have been duly and validly authorized for
issuance by the Company and, when issued and authenticated in accordance
with the terms of the Exchange Offer and the Indenture, will be the legal,
valid and binding obligations of the Company, enforceable against it in
accordance with their terms and entitled to the benefits of the Indenture,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization or similar laws affecting the rights of creditors generally
and subject to general principles of equity.
5.1.16 The Guarantees of the Series A Notes have been duly and
validly authorized by each of the Guarantors and, when executed and
delivered in accordance with the terms of the Indenture and when the
Series A Notes have been issued and authenticated in accordance with the
terms of the Indenture and delivered against payment therefor in
accordance with the terms hereof and thereof, will be the legal, valid and
binding obligations of each of the Guarantors, enforceable against each of
them in accordance with their terms and entitled to the benefits of the
Indenture, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization or similar laws affecting the rights of
creditors generally and subject to general
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<PAGE> 12
principles of equity. The Offering Memorandum contains a summary of the
terms of the Guarantees, which is accurate in all material respects.
5.1.17 The Guarantees of the Series B Notes have been duly and
validly authorized by each of the Guarantors and, when executed and
delivered in accordance with the terms of the Indenture and when the
Series B Notes have been issued and authenticated in accordance with the
terms of the Exchange Offer and the Indenture, will be the legal, valid
and binding obligations of each of the Guarantors, enforceable against
each of them in accordance with their terms and entitled to the benefits
of the Indenture, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization or similar laws affecting the rights of
creditors generally and subject to general principles of equity.
5.1.18 The Warrants have been duly and validly authorized by the
Company for issuance and sale to the Initial Purchaser pursuant to this
Agreement and, when issued and authenticated in accordance with the terms
of the Warrant Agreement and delivered against payment therefor in
accordance with the terms hereof and thereof, will be the legal, valid and
binding obligations of the Company, enforceable against it in accordance
with their terms and entitled to the benefits of the Warrant Agreement,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization or similar laws affecting the rights of creditors generally
and subject to general principles of equity. The Offering Memorandum
contains a summary of the terms of the Warrants, which is accurate in all
material respects.
5.1.19 The Warrants are exercisable into Warrant Shares in accordance
with the terms of the Warrant Agreement. The Company has duly authorized
and reserved for issuance the Warrant Shares and, when issued and paid for
upon exercise of the Warrants in accordance with the terms thereof, the
Warrant Shares will be validly issued, fully paid and nonassessable, free
of any preemptive or similar rights.
5.1.20 The statistical and market-related data included in the
Offering Memorandum are based on or derived from sources which the Company
reasonably believes to be reliable and accurate in all material respects.
5.1.21 Each of the Company and its subsidiaries is not and, after
giving effect to the Offering, will not be, (A) in violation of its
charter or bylaws, (B) in default in the performance of any bond,
debenture, note, indenture, mortgage, deed of trust or other agreement or
instrument to which it is a party or by which it is bound or to which any
of its properties is subject, which singly or in the aggregate, could
reasonably be expected to have a Material Adverse Effect, or (C) in
violation of any local, state, federal or foreign law, statute, ordinance,
rule, regulation, orders, decisions, requirement, judgment or decree of
any court, regulatory body, administrative body, administrative agency,
governmental body, arbitrator or other authority (including, without
limitation, environmental laws, statutes, ordinances, rules, regulations,
judgments or court decrees and the Communications Act of 1934, as amended
(the "Communications Act") and state statutes governing intrastate
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<PAGE> 13
communications) applicable to it or any of its subsidiaries or any of its
or their assets or properties (whether owned or leased), which singly or
in the aggregate, could reasonably be expected to have a Material Adverse
Effect. To the best knowledge of each of the Company and the Guarantors,
there exists no condition that, with notice, the passage of time or
otherwise, would constitute a default under any such document or
instrument.
5.1.22 None of (A) the execution, delivery or performance by each of
the Company and the Guarantors of this Agreement or any of the other
Operative Documents to which it is a party, (B) the issuance and sale of
the Securities and (C) consummation by the Company of the transactions
described in the Offering Memorandum under the caption "Use of Proceeds,"
violates, conflicts with or constitutes a breach of any of the terms or
provisions of, or a default under (or an event that with notice or the
lapse of time, or both, would constitute a default), or requires consent
under, or results in the imposition of a lien or encumbrance on any
properties of the Company or any of its subsidiaries, or an acceleration
of any indebtedness of the Company or any of its subsidiaries pursuant to,
(1) the charter or bylaws of the Company or any of its subsidiaries, (2)
any bond, debenture, note, indenture, mortgage, deed of trust or other
agreement or instrument to which the Company or any of its subsidiaries is
a party or by which any of them or their property is or may be bound, (3)
any law, statute, ordinance, rule, regulation or other governmental or
administrative requirement applicable to the Company or any of its
subsidiaries or any of their assets or properties or (4) any judgment,
order, decision or decree of any court or governmental agency or authority
having jurisdiction over the Company or any of its subsidiaries or any of
their assets or properties, except in each case, in the case of clauses
(2), (3) and (4), for those violations, conflicts or breaches that
individually or in the aggregate could not reasonably be expected to have
a Material Adverse Effect. No consent, approval, authorization or order
of, or filing, registration, qualification, license., permit or decree of
or with, (A) any court or governmental agency, body or administrative
agency or (B) any other person is required for (1) the execution, delivery
and performance by the Company or any of the Guarantors of this Agreement
or any of the other Operative Documents to which it is a party or (2) the
issuance and sale of the Securities and the other transactions
contemplated hereby and thereby, except such as have been or will be
obtained and made on or prior to the Closing Date (or, in the case of the
Registration Rights Agreement, will be obtained and made under the Act,
the Trust Indenture Act, and state securities or Blue Sky laws and
regulations).
5.1.23 There is (A) no action, suit, investigation, inquiry,
complaint or proceeding before or by any court, arbitrator or governmental
agency, body or official, domestic or foreign, now pending or, to the best
knowledge of each of the Company and the Guarantors, threatened or
contemplated to which the Company or any of its subsidiaries is or may be
a party or to which the business or property of the Company or any of its
subsidiaries, is subject, (B) no law, statute, ordinance, rule,
regulation, order or other governmental or administrative requirement that
has been enacted, adopted or issued by any governmental agency or to the
knowledge of the
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<PAGE> 14
Company that has been proposed by any governmental body and (C) no
injunction, restraining order or order of any nature by a federal or state
court or foreign court of competent jurisdiction to which the Company or
any of its subsidiaries is or may be subject or to which the business,
assets or property of the Company or any of its subsidiaries is or may be
subject, that, in the case of clauses (A), (B) and (C) above, (1) is
required to be disclosed in the Preliminary Offering Memorandum and the
Offering Memorandum and that is not so disclosed, or (2) individually or
in the aggregate could reasonably be expected to result in a Material
Adverse Effect.
5.1.24 No action has been taken and no statute, rule, regulation or
order has been enacted, adopted or issued by any governmental agency that
prevents the issuance of the Securities or prevents or suspends the use of
the Offering Memorandum; no injunction, restraining order or order of any
nature by a federal or state court of competent jurisdiction or a
governmental or administrative regulatory authority has been issued that
prevents the issuance of the Securities or prevents or suspends the sale
of the Securities in any jurisdiction referred to in Section 4.5 hereof;
and every request of any securities authority or agency of any
jurisdiction for additional information has been complied with in all
material respects.
5.1.25 There is (A) no unfair labor practice complaint pending
against the Company or any of its subsidiaries nor, to the best knowledge
of each of the Company and the Guarantors, threatened against any of them,
before the National Labor Relations Board, any state or local labor
relations board or any foreign labor relations board, and no grievance or
arbitration proceeding arising out of or under any collective bargaining
agreement is so pending against the Company or any of its subsidiaries or,
to the best knowledge of each of the Company and the Guarantors,
threatened against any of them, (B) no strike, labor dispute, slowdown or
stoppage pending against the Company or any of its subsidiaries nor, to
the best knowledge of each of the Company and the Guarantors, threatened
against the Company or any of its subsidiaries and (C) to the best
knowledge of each of the Company and the Guarantors, no union
representation question existing with respect to the employees of the
Company or any of its subsidiaries, except for those complaints,
grievances, arbitration proceedings, strikes, labor disputes slowdowns,
stoppages or representation questions, as applicable, that individually or
in the aggregate could not reasonably be expected to have a Material
Adverse Effect. To the best knowledge of each of the Company and the
Guarantors, no collective bargaining organizing activities are taking
place with respect to the Company or any of its subsidiaries. None of the
Company or any of its subsidiaries has violated (A) any federal, state or
local law or foreign law relating to discrimination in hiring, promotion
or pay of employees, (B) any applicable wage or hour laws or (C) any
provision of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or the rules and regulations thereunder, except in each
case for those violations that individually or in the aggregate could not
reasonably be expected to have a Material Adverse Effect.
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<PAGE> 15
5.1.26 Except as set forth in the Offering Memorandum, the Company is
not a party to or bound by any stockholders agreements or voting trusts
with respect to any securities of the Company and there are no contracts,
agreements or understandings between the Company or any of its
subsidiaries and any person or entity granting such person or entity the
right to require the Company to file a registration statement under the
Act with respect to any securities of the Company owned or to be owned by
such person or entity or to require the Company to include such securities
in the securities to be registered in the Exchange Offer.
5.1.27 None of the Company or any of its subsidiaries has violated
any foreign, federal, state or local law or regulation relating to the
protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants ("Environmental
Laws") which could individually or in the aggregate reasonably be expected
to have a Material Adverse Effect.
5.1.28 There is no alleged liability, or to the best knowledge of
each of the Company and the Guarantors, potential liability (including,
without limitation, alleged or potential liability or investigatory costs,
cleanup costs, governmental response costs, natural resource damages,
property damages, personal injuries or penalties) of the Company or any of
its subsidiaries arising out of, based on or resulting from the presence
or release into the environment of any Hazardous Material (as defined) at
any location used by the Company or any of its subsidiaries, whether or
not owned by the Company or such subsidiary, as the case may be. The term
"Hazardous Material" means (i) any "hazardous substance" as defined by the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, (ii) any "hazardous waste" as defined by the Resource
Conservation and Recovery Act, as amended, (iii) any petroleum or
petroleum product, (iv) any polychlorinated biphenyl, and (v) any
pollutant or contaminant or hazardous, dangerous or toxic chemical,
material, waste or substance regulated under or within the meaning of any
other law relating to protection of human health or the environment or
imposing liability or standards of conduct concerning any such chemical
material, waste or substance.
5.1.29 Each of the Company and its subsidiaries has such permits,
licenses, franchises, authorizations, certificates, registrations,
approvals and consents of governmental or regulatory authorities
("permits"), including, without limitation, under any applicable
Environmental Laws, and under the Communications Act and state statutes
governing intrastate communications as are necessary or required to own,
lease and operate their respective properties and to conduct their
businesses except where the failure to have such permits either
individually or in the aggregate could not reasonably be expected to
result in a Material Adverse Effect; each of the Company and its
subsidiaries has fulfilled and performed all of its obligations with
respect to such permits and no event has occurred which allows, or after
notice or lapse of time would allow, revocation or termination thereof or
results in any other impairment of the rights of the holder of any such
permit, except where the failure to fulfill or perform its obligations or
the occurrence of such event, as applicable, either
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<PAGE> 16
individually or in the aggregate could not reasonably be expected to have
a Material Adverse Effect; each of the Company and its subsidiaries are in
compliance with the terms and conditions of all such permits; all of the
permits are valid and in full force and effect, are not subject to any
conditions outside of the ordinary course, and all express conditions in
the permits have been satisfied; and neither the Company nor any of its
subsidiaries has received any notice of proceedings relating to the
revocation, suspension or modification of any such permit.
5.1.30 The Company and its subsidiaries have filed with all
administrative bodies, administrative agencies, governmental bodies,
arbitrators or other authorities having jurisdiction over the Company or
such subsidiaries or any of their properties, as applicable, all
applications, statements, reports, tariffs, information, forms, or an
other documents required under all statutes, laws, rules, regulations,
judgments, orders, decisions or decrees, except where the failure to file
would not have a Material Adverse Effect. To the Company's knowledge,
such filings or submissions were in compliance with applicable laws or
regulations when filed or submitted and no deficiencies have been asserted
by any administrative bodies, administrative agencies, governmental
bodies, or other authorities with respect to such filings or submissions
except where the deficiency is of such a nature that the failure to cure
such a deficiency would not have a Material Adverse Effect. To the
Company's knowledge, the information contained in such filings or
submissions was and continues to be in all material respects, accurate,
complete and up-to-date at the time the filings or submissions were made.
5.1.31 Each of the Company and its subsidiaries are in compliance
with the Commission's Staff legal bulletin No. 5 dated October 8, 1997,
revised January 12, 1998 (as amended or otherwise modified through the
date of this Agreement) related to Year 2000 compliance.
5.1.32 Each of the Company and its subsidiaries has (A) good and
marketable title to all of the properties and assets described in the
Offering Memorandum as owned by it, free and clear of all liens, charges,
encumbrances and restrictions (except for Permitted Liens (as defined in
the Indenture) and taxes not yet payable) except as described in the
Offering Memorandum, (B) peaceful and undisturbed possession under all
material leases to which any of them is a party as lessee and each of
which lease is valid and binding and no default exists thereunder, except
for defaults that individually or in the aggregate could not reasonably be
expected to have a Material Adverse Effect, and (C) no reason to believe
that any governmental body or agency is considering limiting, suspending
or revoking any such permit, except where such limitation, suspension or
revocation could not reasonably be expected to have a Material Adverse
Effect.
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<PAGE> 17
5.1.33 There are no contracts, indentures, mortgages, loan
agreements, notes, leases or other agreements or instruments or other
documents (collectively, "Documents") required to be described or referred
to in a Registration Statement on Form S-1 other than those described or
referred to in the Offering Memorandum; all such descriptions are accurate
in all material respects and present fairly the information described
therein. All such Documents to which the Company is a party have been
duly authorized, executed and delivered by the Company, constitute valid
and binding agreements of the Company and are enforceable against the
Company in accordance with the terms thereof, except as the enforceability
thereof may be limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws affecting the enforcement
of creditors' rights generally and by general equitable principles.
5.1.34 There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business), or
guarantees of indebtedness by the Company or any of its subsidiaries to or
for the benefit of (i) any of the officers or directors of the Company or
any of its subsidiaries or any of the members of the families of any of
them or (ii) any other person, including affiliates of the Company or any
of its subsidiaries, in each case except as adequately disclosed in the
Offering Memorandum; all such descriptions are accurate in all material
respects and present fairly the information required to be described in a
Registration Statement on Form S-1.
5.1.35 None of the Company or any of its subsidiaries is currently,
or during the sixty day period prior to the date hereof, has been a party
to any agreement relating to, or engaged in any active commitments,
communications, discussions or negotiations relating to, any acquisition,
purchase or assumption of (i) any other entity that would constitute a
significant subsidiary of the Company (as defined in Rule 1-02(a) of
Regulation S-X of the Act (except that for purposes of this clause 5.1.36
5% shall substitute for 10% as set forth in such rule)) or (ii) any asset
or assets that would be material to the Company or any of its
subsidiaries.
5.1.36 Each of the Company and its subsidiaries owns, possesses or
has the right to employ all patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, software, systems or
procedures), trademarks, service marks and trade names, inventions,
computer programs, technical data and information (collectively, the
"Intellectual Property") presently employed by it in connection with the
businesses now operated by it or that are proposed to be operated by it
free and clear of and without violating any right, claimed right (except
for the letter notification the Company received from SPRINT Corporation
dated March 9, 1998), charge, encumbrance, pledge, security interest,
restriction or lien of any kind of any other person, except for (i) the
security interest granted in the Intellectual Property to ComDisco, Inc.
under the terms of a Bridge Loan dated as of May 5, 1998 and (ii) any
rights, claimed rights, charges, encumbrances, pledges, security
interests, restrictions or liens that individually or in the aggregate
could not reasonably be
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<PAGE> 18
expected to have a Material Adverse Effect, and none of the Company or any
of its subsidiaries has received any written notice of infringement of or
conflict with asserted rights of others with respect to any of the
foregoing except as adequately disclosed in the Offering Memorandum. The
use of the Intellectual Property in connection with the business and
operations of the Company or any of its subsidiaries does not infringe on
the rights of any person, except as could not reasonably be expected to
have a Material Adverse Effect.
5.1.37 All material tax returns required to be filed by the Company
or any of its subsidiaries in all jurisdictions have been so filed. All
taxes, including withholding taxes, penalties and interest, assessments,
fees and other charges due or claimed to be due from such entities or that
are due and payable have been paid, other than those being contested in
good faith and for which adequate reserves have been provided or those
currently payable without penalty or interest. To the knowledge of each
of the Company and the Guarantors, there are no material proposed
additional tax assessments against the Company or any of its subsidiaries,
or the assets or property of the Company or any of its subsidiaries,
except those tax assessments for which adequate reserves have been
established.
5.1.38 None of the Company or any of its subsidiaries is an
"investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended (the
"Investment Company Act").
5.1.39 Each of the Company and its subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance
that: (A) transactions are executed in accordance with management's
general or specific authorizations; (B) transactions are recorded as
necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain accountability
for assets; (C) access to assets is permitted only in accordance with
management's general or specific authorization; and (D) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect thereto.
5.1.40 Each of the Company and its subsidiaries maintains insurance
covering its properties, operations, personnel and businesses, insuring
against such losses and risks as are consistent with industry practice to
protect the Company and its subsidiaries and their respective businesses.
None of the Company or any of its subsidiaries has received notice from
any insurer or agent of such insurer that substantial capital improvements
or other expenditures will have to be made in order to continue such
insurance.
5.1.41 None of the Company or any of its subsidiaries has (A) taken,
directly or indirectly, any action designed to, or that might reasonably
be expected to, cause or result in stabilization or manipulation of the
price of any security of the Company or any of its subsidiaries to
facilitate the sale or resale of the Securities or
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<PAGE> 19
(B) since the date of the Preliminary Offering Memorandum (1) sold, bid
for, purchased or paid any person any compensation for soliciting
purchases of the Securities or (2) paid or agreed to pay to any person any
compensation for soliciting another to purchase any other securities of
the Company or any of its subsidiaries.
5.1.42 No registration under the Act of the Units is required for the
sale of the Units to the Initial Purchaser as contemplated hereby or for
the Exempt Resales assuming (A) that the purchasers who buy the Units in
the Exempt Resales are Eligible Purchasers and (B) the accuracy of the
Initial Purchaser's representations contained herein. No form of general
solicitation or general advertising (as defined in Regulation D under the
Act) was used by the Company, any of the Guarantors or any of their
respective representatives (other than the Initial Purchaser, as to which
the Company and the Guarantors make no representation or warranty) in
connection with the offer and sale of any of the Units or in connection
with Exempt Resales, including, but not limited to, articles, notices or
other communications published in any newspaper, magazine, or similar
medium or broadcast over television or radio, or any seminar or meeting
whose attendees have been invited by any general solicitation or general
advertising. No securities of the same class as the Securities have been
issued and sold by the Company or any of its subsidiaries within the
six-month period immediately prior to the date hereof except as disclosed
in the Offering Memorandum.
5.1.43 The execution and delivery of this Agreement, the other
Operative Documents and the sale of the Units to be purchased by Eligible
Purchasers will not involve any prohibited transaction within the meaning
of Section 406 of ERISA or Section 4975 of the Internal Revenue Code of
1986, as amended. The representation made by the Company and the
Guarantors in the preceding sentence is made in reliance upon and subject
to the accuracy of, and compliance with, the representations and covenants
made or deemed made by Eligible Purchasers as set forth in the Offering
Memorandum under the caption "Notice to Investors."
5.1.44 Each of the Preliminary Offering Memorandum and the Offering
Memorandum, as of its date, and each amendment or supplement thereto, as
of its date, contains the information specified in, and meets the
requirements of, Rule 144A(d)(4) under the Act.
5.1.45 Prior to the effectiveness of any Registration Statement, the
Indenture is not required to be qualified under the Trust Indenture Act.
5.1.46 None of the Company, the Guarantors or any of their respective
affiliates or any person acting on its or their behalf (other than the
Initial Purchaser, as to whom the Company and the Guarantors make no
representation) has engaged or will engage in any directed selling efforts
within the meaning of Regulation S with respect to the Units.
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<PAGE> 20
5.1.47 The Company, the Guarantors and their respective affiliates
and all persons acting on their behalf (other than the Initial Purchaser,
as to whom the Company and the Guarantors make no representation) have
complied with and will comply with the offering restriction requirements
of Regulation S in connection with the offering of the Securities outside
the United States and, in connection therewith, the Preliminary Offering
Memorandum and the Offering Memorandum contains or will contain the
disclosure required by Rule 902(h).
5.1.48 Subsequent to the respective dates as of which information is
given in the Offering Memorandum and up to the Closing Date, except as set
forth in the Offering Memorandum, (A) none of the Company or any of its
subsidiaries has incurred any liabilities or obligations, direct or
contingent, which are material, individually or in the aggregate, to the
Company and its subsidiaries, taken as a whole, nor entered into any
transaction not in the ordinary course of business, (B) there has not been
any change or development which, singly or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect, and (C)
there has been no dividend or distribution of any kind declared, paid or
made by the Company on any class of its capital stock.
5.1.49 None of the execution, delivery and performance of this
Agreement, the issuance and sale of the Securities, the application of the
proceeds from the issuance and sale of the Securities and the consummation
of the transactions contemplated hereby and as set forth in the Offering
Memorandum, will violate Regulations T, U or X promulgated by the Board of
Governors of the Federal Reserve System or analogous foreign laws and
regulations.
5.1.50 The accountants who have certified or will certify the
financial statements included or to be included as part of the Offering
Memorandum are independent accountants as required by the Act. The
historical financial statements of the Company, together with related
schedules and notes thereto, comply as to form in all material respects
with the requirements applicable to registration statements on Form S-1
under the Act and the historical financial statements of the Company and
its subsidiaries present fairly in all material respects the financial
position and results of operations of the Company and its subsidiaries, at
the dates and for the periods indicated. Such financial statements have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods presented, and are in
accordance with the books and records of the Company and its subsidiaries
in all material respects except with respect to interim financial results
to the absence of footnotes and normal year end adjustments. No other
financial statements are required to be included in the Offering
Memorandum. The financial data set forth in the Offering Memorandum under
the captions "Summary Financial Information," "Capitalization," "Selected
Financial Information" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" fairly present, on the
basis stated in the Offering Memorandum, the information set forth therein
and have been compiled on a basis consistent with that of the audited
financial statements included in the Offering Memorandum. The pro forma
financial
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<PAGE> 21
statements included in the Offering Memorandum have been prepared on a
basis consistent with such historical statements of the Company, except
for the pro forma adjustments specified therein, and give effect to
assumptions made on a reasonable basis and present fairly in all material
respects the historical and proposed transactions contemplated by this
Agreement and the other Operative Documents; and such pro forma financial
statements comply as to form in all material respects with the
requirements applicable to pro forma financial statements included in
registration statements on Form S-1 under the Act. The other financial
and statistical information and data included in the Offering Memorandum
derived from the historical and pro forma financial statements are
accurately presented in all material respects and prepared on a basis
consistent with the financial statements, historical and pro forma,
included in the Offering Memorandum and the books and records of the
Company and its subsidiaries.
5.1.51 None of the Company or any of the Guarantors intends to, nor
does it believe that it will, incur debts beyond its ability to pay such
debts as they mature. The preset fair saleable value of the assets of
each of the Company and the Guarantors exceeds the amount that will be
required to be paid on or in respect of its existing debts and other
liabilities (including contingent liabilities) as they become absolute and
matured. The assets of each of the Company and the Guarantors do not
constitute unreasonably small capital to carry out its business as
conducted or as proposed to be conducted.
5.1.52 Except pursuant to this Agreement, there are no contracts,
agreements or understandings between the Company and its subsidiaries and
any other person that would give rise to a valid claim against the Company
or any of its subsidiaries or the Initial Purchaser for a brokerage
commission, finder's fee or like payment in connection with the issuance,
purchase and sale of the Securities.
5.1.53 There exist no conditions that would constitute a default (or
an event which with notice or the lapse of time, or both, would constitute
a default) under any of the Operative Documents.
5.1.54 Each of the Company and its subsidiaries has complied with all
of the provisions of Florida H.B. 1771, codified as Section 517.075 of the
Florida statutes, and all regulations promulgated thereunder relating to
doing business with the Government of Cuba or with any person or any
affiliate located in Cuba.
5.1.55 Each certificate signed by any officer of the Company or any
of the Guarantors and delivered to the Initial Purchaser or counsel for
the Initial Purchaser pursuant to this Agreement shall be deemed to be a
representation and warranty by the Company or such Guarantor, as the case
may be, to the Initial Purchaser as to the matters covered thereby.
The Company and the Guarantors acknowledge that the Initial Purchaser and,
for purposes of the opinions to be delivered to the Initial Purchaser pursuant
to Section 8
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<PAGE> 22
hereof, counsel for the Company and the Guarantors and counsel for the Initial
Purchaser, will rely upon the accuracy and truth of the foregoing
representations and hereby consent to such reliance.
5.2 The Initial Purchaser represents, warrants and covenants to the
Company and agrees that:
5.2.1 The Initial Purchaser is a QIB, with such knowledge and
experience in financial and business matters as are necessary in order
to evaluate the merits and risks of an investment in the Units.
5.2.2 The Initial Purchaser (A) is not acquiring the Units with a
view to any distribution thereof that would violate the Act or the
securities laws of any state of the United States or any other
applicable jurisdiction and (B) will be reoffering and reselling the
Units only to QIBs in reliance on the exemption from the registration
requirements of the Act provided by Rule 144A and in offshore
transactions in reliance upon Regulation S under the Act.
5.2.3 No form of general solicitation or general advertising
(within the meaning of Regulation D under the Act) has been or will be
used by such Initial Purchaser or any of its representatives in
connection with the offer and sale of any of the Units, including, but
not limited to, articles, notices or other communications published in
any newspaper, magazine, or similar medium or broadcast over television
or radio, or any seminar or meeting whose attendees have been invited by
any general solicitation or general advertising.
5.2.4 The Initial Purchaser agrees that, in connection with the
Exempt Resales, it will solicit offers to buy the Units only from, and
will offer to sell the Units only to, Eligible Purchasers. The Initial
Purchaser further agrees (A) that it will offer to sell the Units only
to, and will solicit offers to buy the Units only from (1) Eligible
Purchasers that the Initial Purchaser reasonably believes are QIBs and
(2) Reg S Investors and (B) that each such QIB and Reg S Investor shall
thereby have acknowledged and agreed that such Units will not have been
registered under the Act and may be resold, pledged or otherwise
transferred only (x)(i) to a person whom the seller reasonably believes
is a QIB purchasing for its own account or for the account of a QIB in a
transaction meeting the requirements of Rule 144A, (ii) in an offshore
transaction (as defined in Rule 902 under the Act) meeting the
requirements of Rule 904 under the Act, (iii) in a transaction meeting
the requirements of Rule 144 under the Act, (iv) to an institutional
Accredited Investor (as defined in Rule 501(a)(1), (2), (3) or (7) under
the Act) that, prior to such transfer, furnishes the Trustee or the
Warrant Agent, as applicable, a signed letter containing certain
representations and agreements relating to the registration of transfer
of such Units and an opinion of counsel acceptable to the Company that
such transfer is in compliance with the Act or (v) in accordance with
another exemption from the registration requirements of the Act (and
based upon an opinion of counsel if the Company so requests), (y) to the
Company or any of its
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<PAGE> 23
subsidiaries, (z) pursuant to an effective registration statement under
the Act and, in each case, in accordance with any applicable securities
laws of any state of the United States or any other applicable
jurisdiction and (C) that the holder will, and each subsequent holder is
required to, notify any purchaser of the security evidenced thereby of
the resale restrictions set forth in (B) above.
5.2.5 The Initial Purchaser agrees that it has offered the Units
and will offer and sell the Units (A) as part of its distribution at any
time and (B) otherwise until 40 days after the later of the commencement
of the offering of the Units pursuant hereto and the Closing Date, only
in accordance with Rule 903 of Regulation S or another exemption from
the registration requirements of the Act. The Initial Purchaser agrees
that, during such 40-day restricted period, it will not cause any
advertisement with respect to the Units (including any "tombstone"
advertisement) to be published in any newspaper or periodical or posted
in any public place and will not issue any circular relating to the
Units, except such advertisements as are permitted by and include the
statements required by Regulation S.
The Initial Purchaser understands that the Company and, for purposes of
the opinions to be delivered to the Initial Purchaser pursuant to Section 8
hereof, counsel for the Company and the Guarantors and counsel for the Initial
Purchaser will rely upon the accuracy and truth of the foregoing
representations and hereby consents to such reliance.
6. Indemnification.
6.1 The Company and the Guarantors, jointly and severally, agree to
indemnify and hold harmless (i) the Initial Purchaser, (ii) each person,
if any, who controls the Initial Purchaser within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act and (iii) the
respective officers, directors, partners, employees, representatives and
agents of the Initial Purchaser or any controlling person to the fullest
extent lawful, from and against any and all losses, liabilities, claims,
damages and expenses whatsoever (including but not limited to reasonable
attorneys' fees and any and all expenses whatsoever incurred in
investigating, preparing or defending against any investigation or
litigation, commenced or threatened, or any claim whatsoever, and any and
all amounts paid in settlement of any claim or litigation), joint or
several, to which they or any of them may become subject under the Act,
the Exchange Act or otherwise, insofar as such losses, liabilities,
claims, damages or expenses (or actions in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the Preliminary Offering Memorandum or the
Offering Memorandum, or in any supplement thereto or amendment thereof, or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that the Company and the
Guarantors will not be liable in any such case to the extent, but only to
the extent, that any such loss, liability, claim, damage or expense arises
out of or is based
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<PAGE> 24
upon any such untrue statement or alleged untrue statement or omission or
alleged omission made therein in reliance upon and in conformity with
information relating to the Initial Purchaser furnished to the Company in
writing by or on behalf of the Initial Purchaser expressly for use
therein; provided, further, that such indemnity with respect to the
Preliminary Offering Memorandum shall not inure to the benefit of the
Initial Purchaser (or any persons controlling the Initial Purchaser) from
whom the person asserting such loss, claim, damage or liability purchased
the Units which are the subject thereof if such person did not receive a
copy of the Offering Memorandum (or the Offering Memorandum as amended or
supplemented) at or prior to the confirmation of the sale of such Units to
such person (and the Offering Memorandum or any such amended or
supplemented Offering Memorandum, as applicable, shall have been delivered
by the Company to the Initial Purchaser a reasonable amount of time prior
to the mailing or delivery, as applicable, of such confirmation) and any
such untrue statement or omission or alleged untrue statement or omission
of a material fact contained in such Preliminary Offering Memorandum was
corrected in the Offering Memorandum (or the Offering Memorandum as
amended or supplemented) and the delivery of such Offering Memorandum (as
amended or supplemented as applicable) would have eliminated the liability
of the Initial Purchaser to such person. This indemnity agreement will be
in addition to any liability which the Company and the Guarantors may
otherwise have, including under this Agreement.
6.2 The Initial Purchaser agrees to indemnify and hold harmless (i)
the Company and the Guarantors, (ii) each person, if any, who controls the
Company and the Guarantors within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, and (iii) the respective officers,
directors, representatives and agents of the Company and the Guarantors,
against any losses, liabilities, claims, damages and expenses whatsoever
(including but not limited to reasonable attorneys' fees and any and all
expenses whatsoever incurred in investigating, preparing or defending
against any investigation or litigation, commenced or threatened, or any
claim whatsoever and any and all amounts paid in settlement of any claim
or litigation), joint or several, to which they or any of them may become
subject under the Act, the Exchange Act or otherwise, insofar as such
losses, liabilities, claims, damages or expenses (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the Preliminary Offering
Memorandum or the Offering Memorandum, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, in each case to
the extent, but only to the extent, that any such loss, liability, claim,
damage or expense arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission made therein in
reliance upon and in conformity with information relating to the Initial
Purchaser furnished to the Company in writing by or on behalf of the
Initial Purchaser expressly for use therein; provided, however, that in no
case shall the Initial Purchaser be liable or responsible for any amount
in excess of the discounts and commissions received by the Initial
Purchaser (calculated as the difference between the aggregate principal
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<PAGE> 25
amount of the Series A Notes sold by the Company to the Initial Purchaser
pursuant hereto and the amount paid by the Initial Purchaser pursuant
hereto to purchase the Series A Notes (the "Discounts and Commissions")).
This indemnity will be in addition to any liability which the Initial
Purchaser may otherwise have, including under this Agreement.
6.3 Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify each party
against whom indemnification is to be sought in writing of the
commencement thereof (but the failure so to notify an indemnifying party
shall not relieve it from any liability which it may have under this
Section 6 except to the extent that it has been prejudiced in any material
respect by such failure or from any liability which it may otherwise
have). In case any such action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein, and to the
extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party,
to assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified party
or parties shall have the right to employ its or their own counsel in any
such case, but the fees and expenses of such counsel shall be at the
expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by the indemnifying
parties in connection with the defense of such action, (ii) the
indemnifying parties shall not have employed counsel to take charge of the
defense of such action within a reasonable time after notice of
commencement of the action, or (iii) such indemnified party or parties
shall have reasonably concluded that there may be defenses available to it
or them which are different from or additional to those available to one
or all of the indemnifying parties (in which case the indemnifying party
or parties shall not have the right to direct the defense of such action
on behalf of the indemnified party or parties), in any of which events
such fees and expenses of counsel shall be borne by the indemnifying
parties; provided, however, that the indemnifying party under subsection
(a) or (b) above shall only be liable for the legal expenses of one
counsel (in addition to any local counsel) for all indemnified parties in
each jurisdiction in which any claim or action is brought. Anything in
this subsection to the contrary notwithstanding, an indemnifying party
shall not be liable for any settlement of any claim or action effected
without its prior written consent, provided that such consent was not
unreasonably withheld.
7. Contribution. In order to provide for contribution in circumstances in
which the indemnification provided for in Section 6 is for any reason held to
be unavailable from the Company and the Guarantors or is insufficient to hold
harmless a party indemnified thereunder, the Company and the Guarantors, on the
one hand, and the Initial Purchaser, on the other hand, shall contribute to the
aggregate losses, claims, damages, liabilities and expenses of the nature
contemplated by such indemnification provision (including any investigation,
legal and other expenses reasonably incurred in connection with, and any
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<PAGE> 26
amount paid in settlement of, any action, suit or proceeding or any claims
asserted, but after deducting in the case of losses, claims, damages,
liabilities and expenses suffered by the Company and the Guarantors, any
contribution received by the Company and the Guarantors from persons, other
than the Initial Purchaser, who may also be liable for contribution, including
persons who control the Company and the Guarantors within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act) to which the
Company, the Guarantors and the Initial Purchaser may be subject, in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Guarantors, on one hand, and the Initial Purchaser, on the
other hand, from the offering of the Units or, if such allocation is not
permitted by applicable law or indemnification is not available as a result of
the indemnifying party not having received notice as provided in Section 6, in
such proportion as is appropriate to reflect not only the relative benefits
referred to above but also the relative fault of the Company and the
Guarantors, on one hand, and the Initial Purchaser, on the other hand, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company and
the Guarantors, on one hand, and the Initial Purchaser, on the other hand,
shall be deemed to be in the same proportion as (i) the total proceeds from the
offering of Series A Notes (net of discounts but before deducting expenses)
received by the Company and the Guarantors and (ii) the Discounts and
Commissions received by the Initial Purchaser. The relative fault of the
Company and the Guarantors, on one hand, and of the Initial Purchaser, on the
other hand, shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company, the Guarantors or the Initial Purchaser and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company, the Guarantors and the Initial
Purchaser agree that it would not be just and equitable if contribution
pursuant to this Section 7 were determined by pro rata allocation or by any
other method of allocation which does not take into account the equitable
considerations referred to above. Notwithstanding the provisions of this
Section 7, (i) in no case shall the Initial Purchaser be required to contribute
any amount in excess of the amount by which the Discounts and Commissions
exceeds the amount of any damages which the Initial Purchaser has otherwise
been required to pay by reason of any untrue or alleged untrue statement or
omission or alleged omission and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 7, (A) each person, if any,
who controls the Initial Purchaser within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act and (B) the respective officers,
directors, representatives and agents of the Initial Purchaser or any
controlling person shall have the same rights to contribution as the Initial
Purchaser, and (A) each person, if any, who controls the Company and the
Guarantors within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act and (B) the respective officers, directors, partners, employees,
representatives and agents of the Company and the Guarantors shall have the
same rights to contribution as the Company and the Guarantors, subject in each
case to clauses (i) and (ii) of this Section 7. Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties
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<PAGE> 27
under this Section 7, notify such party or parties from whom contribution may
be sought, but the failure to so notify such party or parties shall not relieve
the party or parties from whom contribution may be sought from any obligation
it or they may have under this Section 7 or otherwise. No party shall be
liable for contribution with respect to any action or claim settled without its
prior written consent, provided that such written consent was not unreasonably
withheld.
8. Conditions of Initial Purchaser's Obligations. The obligations of the
Initial Purchaser to purchase and pay for the Units, as provided herein, shall
be subject to the satisfaction of the following conditions:
8.1 All of the representations and warranties of the Company and the
Guarantors contained in this Agreement shall be true and correct on the
date hereof and on the Closing Date with the same force and effect as if
made on and as of the date hereof and the Closing Date, respectively.
Each of the Company and the Guarantors shall have performed or complied
with all of the agreements herein contained and required to be performed
or complied with by it at or prior to the Closing Date.
8.2 The Offering Memorandum shall have been printed and copies
distributed to the Initial Purchaser not later than 10:00 a.m., New York
City time, on the day following the date of this Agreement or at such
later date and time as to which the Initial Purchaser may agree, and no
stop order suspending the qualification or exemption from qualification of
the Securities in any jurisdiction referred to in Section 4.5 shall have
been issued and no proceeding for that purpose shall have been commenced
or shall be pending or threatened.
8.3 No action shall have been taken and no statute, rule, regulation
or order shall have been enacted, adopted or issued by any legislature,
governmental agency or judicial body which would, as of the Closing Date,
prevent the issuance of the Securities; no action, suit or proceeding
shall have been commenced and be pending against or affecting or, to the
best knowledge of the Company and the Guarantors, threatened against, the
Company or any of its subsidiaries before any court or arbitrator or any
governmental body, agency or official that, if adversely determined, could
reasonably be expected to result in a Material Adverse Effect; and no stop
order shall have been issued preventing the use of the Offering
Memorandum, or any amendment or supplement thereto, or which could
reasonably be expected to have a Material Adverse Effect.
8.4 Since the dates as of which information is given in the Offering
Memorandum, (i) there shall not have been any material adverse change, or
any development that is reasonably likely to result in a material adverse
change, in the capital stock or the long-term debt or in the short-term
debt, of the Company or any of its subsidiaries from that set forth in the
Offering Memorandum or material increases in the long-term debt or
short-term debt of the Company or any of its subsidiaries, (ii) no
dividend or distribution of any kind shall have been declared, paid
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or made by the Company or any of its subsidiaries on any class of its
capital stock, (iii) none of the Company or any of its subsidiaries shall
have incurred any liabilities or obligations, direct or contingent, that
are material, individually or in the aggregate, to the Company and its
subsidiaries, taken as a whole, and that are required to be disclosed on a
balance sheet or notes thereto in accordance with generally accepted
accounting principles and are not disclosed on the latest balance sheet or
notes thereto included in the Offering Memorandum. Since the date hereof
and since the dates as of which information is given in the Offering
Memorandum, the Company and each of its subsidiaries shall have not
sustained any material loss or interference with their respective
businesses or properties from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or from any labor dispute
or any legal or governmental proceedings, and there has not been any
material adverse change, or any development involving a material adverse
change to the business, prospects, properties, assets, earnings,
operations, condition (financial or other) or results of operations of the
Company and its subsidiaries taken as a whole and (iv) there has been no
impairment of assets or material reduction in the value of any assets of
the Company or any of its subsidiaries.
8.5 The Initial Purchaser shall have received certificates, dated the
Closing Date, signed on behalf of the Company and the Guarantors, in form
and substance satisfactory to the Initial Purchaser, confirming, as of the
Closing Date, the matters set forth in paragraphs 8.1, 8.2, 8.3 and 8.4
and that, as of the Closing Date, the obligations of the Company and the
Guarantors to be performed hereunder on or prior thereto have been duly
performed.
8.6 The Initial Purchaser shall have received on the Closing Date an
opinion, dated the Closing Date, in form and substance satisfactory to the
Initial Purchaser and counsel for the Initial Purchaser, of Haligman
Lottner Rubin & Fishman, counsel for the Company and the Guarantors, to
the effect set forth in Exhibit C hereto.
8.7 At the time this Agreement is executed and at the Closing Date,
the Initial Purchaser shall have received from PriceWaterhouseCoopers,
independent public accountants, dated as of the date of this Agreement and
as of the Closing Date, customary comfort letters addressed to the Initial
Purchaser and in form and substance satisfactory to the Initial Purchaser
and counsel for the Initial Purchaser with respect to the financial
statements and certain financial information of the Company and its
subsidiaries contained in the Offering Memorandum and/or incorporated
therein by reference.
8.8 The Initial Purchaser shall have received an opinion, dated the
Closing Date, in form and substance reasonably satisfactory to the Initial
Purchaser, of Paul, Hastings, Janofsky & Walker LLP, counsel for the
Initial Purchaser, covering such matters as are customarily covered in
such opinions.
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8.9 Paul, Hastings, Janofsky & Walker LLP shall have been furnished
with such documents, in addition to those set forth above, as they may
reasonably require for the purpose of enabling them to review or pass upon
the matters referred to in this Section 8 and in order to evidence the
accuracy, completeness or satisfaction in all material respects of any of
the representations, warranties or conditions herein contained.
8.10 Prior to the Closing Date, the Company and the Guarantors shall
have furnished to the Initial Purchaser such further information,
certificates and documents as the Initial Purchaser may reasonably
request.
8.11 The Company, the Guarantors and the Trustee shall have entered
into the Indenture and the Initial Purchaser shall have received
counterparts, conformed as executed, thereof.
8.12 The Company and the Guarantors shall have entered into the
Registration Rights Agreement and the Initial Purchaser shall have
received counterparts, conformed as executed, thereof.
8.13 The Company shall have entered into the Warrant Agreement and
the Initial Purchaser shall have received counterparts, conformed and
executed, thereof.
8.14 The Company shall have entered into the Warrant Registration
Rights Agreement and the Initial Purchaser shall have received
counterparts, conformed and executed, thereof.
8.15 There shall not have been any announcement by any "nationally
recognized statistical rating organization," as defined for purposes of
Rule 463(g) under the Securities Act, that (i) it is downgrading its
rating assigned to any class of securities of the Company or (ii) it is
reviewing its ratings assigned to any class of securities of the Company
with a view to possible downgrading, or with negative implications, or
direction not determined.
8.16 The Securities shall have been approved for trading on PORTAL.
All opinions, certificates, letters and other documents required by this
Section 8 to be delivered by the Company and the Guarantors will be in
compliance with the provisions hereof only if they are reasonably satisfactory
in form and substance to the Initial Purchaser. The Company and the Guarantors
shall furnish the Initial Purchaser with such conformed copies of such
opinions, certificates, letters and other documents as they shall reasonably
request.
If any condition specified in this Section 8 shall not have been fulfilled
when and as required to be fulfilled, this Agreement may be terminated by the
Initial Purchaser by notice to the Company, and such termination shall be
without liability of any party to any other party except as provided in Section
4.6; provided, however, that notwithstanding any
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such termination, the provisions of Section 6, 7 and 14 shall remain in effect.
Notice of such cancellation shall be given to the Company in writing by
personal delivery or facsimile transmission or by telephone promptly confirmed
in writing.
9. Initial Purchaser's Information. The Company and the Guarantors
acknowledge that the statements with respect to the offering of the Units set
forth in the last paragraph of the cover page and the third paragraph and the
fourth sentence of the fourth paragraph under the caption "Plan of
Distribution" in the Offering Memorandum constitute the only information
relating to the Initial Purchaser furnished to the Company in writing by or on
behalf of the Initial Purchaser expressly for use in the Offering Memorandum.
10. Survival of Representations and Agreements. All representations and
warranties, covenants and agreements of the Initial Purchaser, the Company and
the Guarantors contained in this Agreement, including the agreements contained
in Sections 4.6 and 11.4, the indemnity agreements contained in Section 6 and
the contribution agreements contained in Section 7, shall remain operative and
in full force and effect regardless of any investigation made by or on behalf
of the Initial Purchaser, any controlling person thereof, or by or on behalf of
the Company and the Guarantors or any controlling person thereof, and shall
survive delivery of and payment for the Units to and by the Initial Purchaser.
The representations contained in Section 5 and the agreements contained in
Sections 4.6, 6, 7 and 11.4 shall survive the termination of this Agreement,
including any termination pursuant to Section 11.
11. Effective Date of Agreement; Termination.
11.1 This Agreement shall become effective upon execution and
delivery of a counterpart hereof by each of the parties hereto.
11.2 The Initial Purchaser shall have the right to terminate this
Agreement at any time prior to the Closing Date by notice to the Company
from the Initial Purchaser, without liability (other than with respect to
Sections 6 and 7) on the Initial Purchaser's part to the Company or any of
the Guarantors if, on or prior to such date, (i) the Company or any of the
Guarantors shall have failed, refused or been unable to perform any
agreement on their part to be performed hereunder, (ii) any other
condition to the obligations of the Initial Purchaser hereunder as
provided in Section 8 is not fulfilled when and as required, (iii) in the
reasonable judgment of the Initial Purchaser, any material adverse change
shall have occurred since the respective dates as of which information is
given in the Offering Memorandum in the condition (financial or
otherwise), business, properties, assets, liabilities, prospects, net
worth, results of operations or cash flows of the Company and its
subsidiaries, taken as a whole, other than as set forth in the Offering
Memorandum, or (iv)(A) any domestic or international event or act or
occurrence has materially disrupted, or in the opinion of the Initial
Purchaser will in the immediate future materially disrupt, the market for
the Company's securities or for securities in general; or (B) trading in
securities generally on the New York or American Stock Exchanges or the
over-the-counter market shall have been suspended or materially limited,
or minimum or maximum
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<PAGE> 31
prices for trading shall have been established, or maximum ranges for
prices for securities shall have been required, on such exchanges or in
the over-the-counter market, or by such exchange or other regulatory body
or governmental authority having jurisdiction; or (C) a banking moratorium
shall have been declared by federal or state authorities, or a moratorium
in foreign exchange trading by major international banks or persons shall
have been declared; or (D) there is an outbreak or escalation of armed
hostilities involving the United States on or after the date hereof, or if
there has been a declaration by the United States of a national emergency
or war, the effect of which shall be, in the Initial Purchaser's
reasonable judgment, to make it inadvisable or impracticable to proceed
with the offering or delivery of the Units on the terms and in the manner
contemplated in the Offering Memorandum; or (E) there shall have been such
a material adverse change in general economic, political or financial
conditions or if the effect of international conditions on the financial
markets in the United States shall be such as, in the Initial Purchaser's
reasonable judgment, makes it inadvisable or impracticable to proceed with
the delivery of the Units as contemplated hereby.
11.3 Any notice of termination pursuant to this Section 11 shall be
by telephone or telephonic facsimile and, in either case, confirmed in
writing by letter.
11.4 If this Agreement shall be terminated pursuant to any of the
provisions hereof (otherwise than pursuant to clause (iv) of Section 11.2,
in which case each party will be responsible for its own expenses), the
Company and the Guarantors shall reimburse the Initial Purchaser as set
forth in the engagement letter between the Company and the Initial
Purchaser dated May 27, 1998.
12. Notice. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to the Initial
Purchaser shall be mailed, delivered, telecopied and confirmed in writing or
sent by a nationally recognized overnight courier service guaranteeing delivery
on the next business day to BancBoston Securities Inc., 100 Federal Street,
Boston, Massachusetts 02110, Attention: Investment Banking, telecopy number:
(617) 434-0382, with a copy to Paul, Hastings, Janofsky & Walker LLP, 399 Park
Avenue, New York, New York 10022, Attention: Thomas R. Pollock, telecopy
number: (212) 319-4090; and if sent to the Company or any of the Guarantors,
shall be mailed, delivered, telecopied and confirmed in writing or sent by a
nationally recognized overnight courier service guaranteeing delivery on the
next business day to TeleHub Communications Corporation, 2033 North Main
Street, Suite 340, Walnut Creek, California 94596, Attention: Chief Financial
Officer, telecopy number: (510) 295-1143, with a copy to Haligman Lottner Rubin
& Fishman, 633 Seventeenth Street, Suite 2700, Denver, Colorado 80202-3635,
Attention: Michael L. Glaser, telecopy number: (303) 292-1300.
13. Parties. This Agreement shall inure solely to the benefit of, and
shall be binding upon, the Initial Purchaser, the Company and the Guarantors
and the controlling persons and agents referred to in Sections 6 and 7, and
their respective successors and assigns, and no other person shall have or be
construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provision herein
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<PAGE> 32
contained. The term "successors and assigns" shall not include a purchaser, in
its capacity as such, of Units from the Initial Purchaser.
14. Construction. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY
PROVISIONS RELATING TO CONFLICTS OF LAWS. TIME IS OF THE ESSENCE IN THIS
AGREEMENT.
15. Captions. The captions included in this Agreement are included solely
for convenience of reference and are not to be considered a part of this
Agreement.
16. Counterparts. This Agreement may be executed in various counterparts
which together shall constitute one and the same instrument.
17. Partial Invalidity. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
[Signature page to follow]
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<PAGE> 33
If the foregoing correctly sets forth the understanding among the Initial
Purchaser, the Company and the Guarantors please so indicate in the space
provided below for that purpose, whereupon this letter shall constitute a
binding agreement among us.
Very truly yours,
TELEHUB COMMUNICATIONS CORPORATION
By:________________________________
Name: Donald H. Sledge
Title: President and Chief Executive
Officer
TELEHUB TECHNOLOGIES CORPORATION
By:________________________________
Name: Donald H. Sledge
Title: Chief Executive Officer
TELEHUB NETWORK SERVICES CORPORATION
By:________________________________
Name: Donald H. Sledge
Title: Chief Executive Officer
TELEHUB LEASING CORPORATION
By:________________________________
Name: Donald H. Sledge
Title: President
Accepted and agrees to as of
the date first above written:
BANCBOSTON SECURITIES INC.
By:____________________________
Name: Neal Reiner
Title: Managing Director
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<PAGE> 34
EXHIBIT A
Form of Registration Rights Agreement
A-1
<PAGE> 35
EXHIBIT B
Form of Warrant Registration Rights Agreement
B-1
<PAGE> 36
EXHIBIT C
Form of Opinion of Haligman Lottner Rubin & Fishman
1. Each of the Company and the Guarantors (a) is duly incorporated
and is validly existing as a corporation in good standing under the laws
of its jurisdiction of organization, (b) has all requisite corporate power
and authority to carry on its business as it is currently being conducted
and as described in the Offering Memorandum and to own, lease and operate
its properties, and (c) is duly qualified and in good standing as a
foreign corporation, authorized to do business in each jurisdiction listed
on Exhibit 1 attached hereto, except where the failure to be so qualified
could not reasonably be expected to have a Material Adverse Effect.
2. Each of the Company and the Guarantors has all requisite corporate
power and authority to enter into and perform its obligations under this
Agreement and each of the other Operative Documents to which it is a
party.
3. All of the outstanding capital stock of the Company has been duly
authorized, validly issued, and is fully paid and nonassessable and was
not issued in violation of any statutory preemptive or similar rights.
4. All of the outstanding capital stock of each subsidiary of the
Company is owned by the Company, and to the knowledge of such counsel, is
owned free and clear of any security interest, claim, lien, limitation on
voting rights or encumbrance; and all such securities have been duly
authorized, validly issued, and are fully paid and nonassessable and were
not issued in violation of any statutory preemptive or similar rights.
5. This Agreement has been duly authorized by all necessary corporate
action on the part of each of the Company and the Guarantors, and has been
duly executed and delivered by each of the Company and the Guarantors.
6. The Registration Rights Agreement has been duly authorized by all
necessary corporate action on the part of each of the Company and the
Guarantors, and has been duly executed and delivered by each of the
Company and the Guarantors, and is the valid and binding obligation of
each of the Company and the Guarantors, enforceable against each of them
in accordance with its terms, (a) subject to (i) the effect of bankruptcy,
insolvency, reorganization, arrangement, moratorium, fraudulent
conveyance, fraudulent transfer and other similar laws relating to or
affecting the rights of creditors and (ii) general principles of equity
(including, without limitation, concepts of materiality, reasonableness,
good faith and fair dealing and the possible unavailability of specific
performance, injunctive relief and other equitable remedies), regardless
of whether considered in a proceeding at law or in equity; and (b) except
to the extent that the enforceability of indemnification and contribution
provisions may be limited by federal and state securities laws and the
policies underlying such laws.
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7. The Indenture has been duly authorized by all necessary corporate
action on the part of each of the Company and the Guarantors, and has been
duly executed and delivered by each of the Company and the Guarantors, and
is the valid and binding obligation of each of the Company and the
Guarantors, enforceable against each of them in accordance with its terms
(assuming the due authorization, execution and delivery of the Indenture
by the Trustee), subject to (i) the effect of bankruptcy, insolvency,
reorganization, arrangement, moratorium, fraudulent conveyance, fraudulent
transfer and other similar laws relating to or affecting the rights of
creditors and (ii) general principles of equity (including, without
limitation, concepts of materiality, reasonableness, good faith and fair
dealing and the possible unavailability of specific performance,
injunctive relief and other equitable remedies), regardless of whether
considered in a proceeding at law or in equity.
8. The Warrant Agreement has been duly authorized by all necessary
corporate action on the part of the Company, and has been duly executed
and delivered by the Company, and is the valid and binding obligation of
the Company, enforceable against it in accordance with its terms, (a)
subject to (i) the effect of bankruptcy, insolvency, reorganization,
arrangement, moratorium, fraudulent conveyance, fraudulent transfer and
other similar laws relating to or affecting the rights of creditors and
(ii) general principles of equity (including, without limitation, concepts
of materiality, reasonableness, good faith and fair dealing and the
possible unavailability of specific performance, injunctive relief and
other equitable remedies), regardless of whether considered in a
proceeding at law or in equity; and (b) except to the extent that the
enforceability of indemnification and contribution provisions may be
limited by federal and state securities laws and the policies underlying
such laws.
9. The Warrant Registration Rights Agreement has been duly authorized
by all necessary corporate action on the part of the Company, and has
been duly executed and delivered by the Company, and is the valid and
binding obligation of the Company, enforceable against it in accordance
with its terms, (a) subject to (i) the effect of bankruptcy, insolvency,
reorganization, arrangement, moratorium, fraudulent conveyance, fraudulent
transfer and other similar laws relating to or affecting the rights of
creditors and (ii) general principles of equity (including, without
limitation, concepts of materiality, reasonableness, good faith and fair
dealing and the possible unavailability of specific performance,
injunctive relief and other equitable remedies), regardless of whether
considered in a proceeding at law or in equity; and (b) except to the
extent that the enforceability of indemnification and contribution
provisions may be limited by federal and state securities laws and the
policies underlying such laws.
10. The Series A Notes have been duly authorized by all necessary
corporate action on the part of the Company, and have been duly executed
by the Company for issuance and sale to the Initial Purchaser pursuant to
this Agreement, and, when authenticated in accordance with the terms of
the Indenture and delivered against payment therefor in accordance with
the terms hereof and thereof, the Series A Notes will be the valid and
binding obligations of the Company, enforceable against it in accordance
with their terms and entitled to the benefits of the Indenture, subject
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<PAGE> 38
to (i) the effect of bankruptcy, insolvency, reorganization, arrangement,
moratorium, fraudulent conveyance, fraudulent transfer and other similar
laws relating to or affecting the rights of creditors and (ii) general
principles of equity (including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing and the possible
unavailability of specific performance, injunctive relief and other
equitable remedies), regardless of whether considered in a proceeding at
law or in equity. The Offering Memorandum contains a summary of the terms
of the Series A Notes, which is accurate in all material respects.
11. The Series B Notes have been duly authorized by all necessary
corporate action on the part of the Company for issuance by the Company,
and, when issued and authenticated in accordance with the terms of the
Exchange Offer and the Indenture, the Series B Notes will be the valid and
binding obligations of the Company, enforceable against it in accordance
with their terms and entitled to the benefits of the Indenture, subject to
(i) the effect of bankruptcy, insolvency, reorganization, arrangement,
moratorium, fraudulent conveyance, fraudulent transfer and other similar
laws relating to or affecting the rights of creditors and (ii) general
principles of equity (including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing and the possible
unavailability of specific performance, injunctive relief and other
equitable remedies), regardless of whether considered in a proceeding at
law or in equity. The Offering Memorandum contains a summary of the terms
of the Series B Notes, which is accurate in all material respects.
12. The Guarantees of the Series A Notes have been duly authorized by
all necessary corporate action on the part of each of the Guarantors, and
have been duly executed by each of the Guarantors, and when the Series A
Notes have been issued and authenticated in accordance with the terms of
the Indenture and delivered against payment therefor in accordance with
the terms hereof and thereof, the Guarantees of the Series A Notes will be
the valid and binding obligations of each of the Guarantors, enforceable
against each of them in accordance with their terms and entitled to the
benefits of the Indenture, subject to (i) the effect of bankruptcy,
insolvency, reorganization, arrangement, moratorium, fraudulent
conveyance, fraudulent transfer and other similar laws relating to or
affecting the rights of creditors and (ii) general principles of equity
(including, without limitation, concepts of materiality, reasonableness,
good faith and fair dealing and the possible unavailability of specific
performance, injunctive relief and other equitable remedies), regardless
of whether considered in a proceeding at law or in equity. The Offering
Memorandum contains a summary of the terms of the Guarantees of the Series
A Notes, which is accurate in all material respects.
13. The Guarantees of the Series B Notes have been duly authorized by
all necessary corporate action on the part of each of the Guarantors, and
when executed and delivered in accordance with the terms of the Indenture,
and when the Series B Notes have been issued and authenticated in
accordance with the terms of the Exchange Offer and the Indenture, the
Guarantees of the Series B Notes will be the valid and binding obligations
of each of the Guarantors, enforceable against each of them in accordance
with their terms and entitled to the benefits of the Indenture,
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<PAGE> 39
subject to (i) the effect of bankruptcy, insolvency, reorganization,
arrangement, moratorium, fraudulent conveyance, fraudulent transfer and
other similar laws relating to or affecting the rights of creditors and
(ii) general principles of equity (including, without limitation, concepts
of materiality, reasonableness, good faith and fair dealing and the
possible unavailability of specific performance, injunctive relief and
other equitable remedies), regardless of whether considered in a
proceeding at law or in equity. The Offering Memorandum contains a
summary of the terms of the Guarantees of the Series B Notes, which is
accurate in all material respects.
14. The Units have been duly authorized by all necessary corporate
action on the part of the Company. The Warrants have been duly authorized
by all necessary corporate action on the part of the Company, and have
been duly executed by the Company for issuance and sale to the Initial
Purchaser pursuant to this Agreement, and, when authenticated in
accordance with the terms of the Warrant Agreement and delivered against
payment therefor in accordance with the terms hereof and thereof, the
Warrants will be the valid and binding obligations of the Company,
enforceable against it in accordance with their terms and entitled to the
benefits of the Warrant Agreement, subject to (i) the effect of
bankruptcy, insolvency, reorganization, arrangement, moratorium,
fraudulent conveyance, fraudulent transfer and other similar laws relating
to or affecting the rights of creditors and (ii) general principles of
equity (including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing and the possible
unavailability of specific performance, injunctive relief and other
equitable remedies), regardless of whether considered in a proceeding at
law or in equity. The Offering Memorandum contains a summary of the terms
of the Warrants, which is accurate in all material respects.
15. The Warrants are exercisable into Warrant Shares in accordance
with the terms of the Warrant Agreement. The Company has duly authorized
and reserved for issuance the Warrant Shares and, when issued and paid for
upon exercise of the Warrants in accordance with the terms thereof, the
Warrant Shares will be validly issued, fully paid and nonassessable, free
of any statutory preemptive or similar rights.
16. The Preliminary Offering Memorandum and the Offering Memorandum
contain a summary of the terms of each of the Indenture and the
Registration Rights Agreement which, in each case, is accurate in all
material respects. The statements under the captions "Offering
Memorandum Summary --The Offering," "Description of Units," "Description
of Notes," "Description of Warrants," "Notice to Investors" and "Plan of
Distribution" in the Preliminary Offering Memorandum and the Offering
Memorandum, insofar as such statements constitute a summary of the legal
matters, documents or proceedings referred to therein, present fairly in
all material respects, such legal matters, documents and proceedings.
17. The statements in the Preliminary Offering Memorandum and the
Offering Memorandum under the heading "Certain Federal Income Tax
Consequences" insofar as they constitute a summary of matters of United
States federal tax law and regulations or legal conclusions with respect
thereto, constitute fair and accurate summaries of the matters described
therein in all material respects.
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18. To such counsel's knowledge, neither the Company nor any of its
subsidiaries is (a) in violation of its charter or bylaws or (b) in
default in the performance of any bond, debenture, note, indenture,
mortgage, deed of trust or other agreement or instrument to which it is a
party or by which it is bound, which default, in the case of clause (b),
singly or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
19. No registration under the Act of the Securities is required for
the sale of the Units to the Initial Purchaser as contemplated hereby or
for the Exempt Resales assuming (a) that the Initial Purchaser is a QIB,
(b) that the purchasers who buy the Units in the Exempt Resales are either
QIBs or Reg S Investors, (c) the accuracy of the Initial Purchaser's
representations contained herein and (d) the accuracy of the Company's and
the Guarantors' representations contained herein.
20. Each of the Preliminary Offering Memorandum and the Offering
Memorandum, as of its date, and each amendment or supplement thereto, as
of its date (except for the financial statements and related notes, the
financial statement schedules and other financial and statistical data
included or required to be included therein, as to which no opinion need
be expressed), complies as to form in all material respects with the
requirements of Rule 144A(d)(4) under the Act.
21. None of the execution, delivery and performance of this
Agreement, the issuance and sale of the Units, the application of the
proceeds from the issuance and sale of the Units and the consummation of
the transactions contemplated thereby as set forth in the Offering
Memorandum, will violate Regulations G, T, U or X promulgated by the Board
of Governors of the Federal Reserve System.
22. When the Units are issued and delivered pursuant to this
Agreement, none of the Securities will be of the same class (within the
meaning of Rule 144A under the Act) as securities of the Company or of any
of the Guarantors that are listed on a national securities exchange
registered under Section 6 of the Exchange Act or that are quoted in a
United States automated inter-dealer quotation system.
23. None of (a) the execution, delivery or performance by the Company
or any of the Guarantors of this Agreement or any of the other Operative
Documents to which it is a party, (b) the issuance and sale of the Units
and (c) consummation by the Company of the transactions described in the
Offering Memorandum under the caption "Use of Proceeds," violates,
conflicts with or constitutes a breach of any of the terms or provisions
of, or a default under (or an event that with notice or the lapse of time,
or both, would constitute a default), or requires consent under (which
consent has not been obtained), or results in the imposition of a lien or
encumbrance on any properties of the Company or any of its subsidiaries
(except as described in the Offering Memorandum), or an acceleration of
any indebtedness of the Company or any of its subsidiaries pursuant to,
(i) the charter or bylaws of the Company or any of its subsidiaries, (ii)
any bond, debenture, note, indenture, mortgage, deed of trust or other
agreement or instrument to which the Company or any of its subsidiaries is
a party or by which any of them or their property is bound of which such
counsel is aware; (iii) to such counsel's knowledge, any statute, law,
ordinance, rule or
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regulation applicable to the Company or any its subsidiaries of which such
counsel is aware or (iv) to such counsel's knowledge, any judgment, order
or decree of any federal or state court or governmental agency or
authority having jurisdiction over the Company or any of its subsidiaries.
Assuming compliance with applicable state securities and Blue Sky laws,
as to which such counsel need express no opinion, and except for the
filing of a registration statement under the Act and qualification of the
Indenture under the Trust Indenture Act, or in connection with the
Registration Rights Agreement, to such counsel's knowledge, no consent,
approval, authorization or order of, or filing, registration,
qualification, license or permit of or with (which has not been obtained
or made), (a) any federal or state court or governmental agency, body or
administrative agency or (b) any other person is required for (i) the
execution, delivery and performance by the Company or any of the
Guarantors of this Agreement or any of the other Operative Documents to
which it is a party or (ii) the issuance and sale of the Units and the
transactions contemplated hereby and thereby, except such as have been
obtained and made or have been disclosed in the Offering Memorandum.
24. To such counsel's knowledge, there is (a) no litigation or other
legal proceeding pending before any court, arbitrator or governmental
agency, or overtly threatened in writing against the Company or any of its
subsidiaries or their properties, (b) no statute, law, ordinance, rule,
regulation or order of any federal or state governmental agency and (c) no
injunction, restraining order or order of any nature by any federal or
state court or governmental agency to which the Company or any of its
subsidiaries is subject or to which the business, assets, or property of
the Company or any of its subsidiaries is subject, that, in the case of
clauses (a), (b) and (c) above, is required to be disclosed in the
Preliminary Offering Memorandum and the Offering Memorandum and that is
not so disclosed.
25. None of the Company or any of its subsidiaries is an "investment
company" or a company "controlled" by an "investment company" within the
meaning of the Investment Company Act.
26. Except as set forth in the Registration Rights Agreements, to
such counsel's knowledge, there are no holders of securities of the
Company or any of its subsidiaries who, by reason of the execution by the
Company and the Guarantors of this Agreement or any other Operative
Document or the consummation by the Company and the Guarantors of the
transactions contemplated hereby and thereby, have the right to request or
demand that the Company or any of its subsidiaries register under the Act
or analogous foreign laws and regulations securities held by them.
27. To such counsel's knowledge, there are not currently any
outstanding subscriptions, rights, warrants, calls, commitments of sale or
options to acquire, or instruments convertible into or exchangeable for,
any capital stock or other equity interest of the Company or any
subsidiary of the Company.
28. To such counsel's knowledge, no stop order preventing the use of
the Preliminary Offering Memorandum or the Offering Memorandum, or any
amendment or supplement thereto, or any order asserting that any of the
transactions
C-6
<PAGE> 42
contemplated by this Agreement are subject to the registration
requirements of the Act, has been issued.
29. The Company and its subsidiaries possess such permits, licenses,
certificates, registrations, approvals, consents and other authorizations
(collectively, "Governmental Licenses") issued by the appropriate federal,
state, local or foreign regulatory agencies or bodies necessary or
required to conduct the business now conducted and proposed to be
conducted by the Company and its subsidiaries, including, but not limited
to, any Governmental Licenses issued by the Federal Communications
Commission or from state agencies having jurisdiction over intrastate
communications; the Company and its subsidiaries are in compliance with
the terms and conditions of all such Governmental Licenses; all of the
Governmental Licenses are valid and in full force and effect; there are no
proceedings pending, or, to such counsel's knowledge, threatened, with
respect to the revocation, suspension or modification of any such
Governmental Licenses.
30. The Indenture complies as to form in all material respects with
the requirements of the Trust Indenture Act and the rules and regulations
of the Commission applicable to an indenture which is qualified
thereunder. Prior to the Exchange Offer or the effectiveness of the Shelf
Registration Statement, the Indenture is not required to be qualified
under the Trust Indenture Act.
31. Exhibit A hereto accurately and completely lists all of the
certificates and authorizations of TeleHub Network Services Corporation
issued by the FCC. TeleHub Network Services Corporation has the
certificates and authorizations, if any, required by the Communications
Act (collectively, the "Licenses") for the provision of interstate and
foreign telecommunications services within the United States as described
in the Offering Memorandum. TeleHub Network Services Corporation does not
have any pending application at the FCC.
32. To our knowledge, TeleHub Network Services Corporation is not
subject to any pending or threatened complaint, investigation or
proceeding before the FCC based on any alleged violation by the TeleHub
Network Services Corporation in connection with its provision of or
failure to provide telecommunications services.
33. To our knowledge, (i) the Licenses are validly issued; (ii) the
Licenses are in full force and effect and are not subject to conditions
outside the ordinary course; and (iii) all express conditions in the
Licenses have been satisfied.
34. The statements in the Offering Memorandum under the headings of
"Risk Factors-Competition," "Risk Factors-Regulation,"
"Business-Competition," "Business-Regulation" and "Business-Litigation"
insofar as such statements constitute a summary of the legal matters,
documents or proceedings of the FCC with respect to telecommunications
matters referred to therein, are accurate in all material respect and
fairly summarize the matters therein described.
35. All regulatory tariffs applicable to TeleHub Network Services
Corporation's interstate and international operation (the "FCC Tariffs"),
are in full
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<PAGE> 43
force and effect in accordance with their terms, and to our knowledge,
there is no outstanding notice of suspension, cancellation or termination
or any threatened suspension, cancellation or termination with respect to
any of the FCC Tariffs. TeleHub Network Services Corporation is not
subject to any restrictions or conditions applicable to its FCC Tariffs
that limit or would limit the operations of the Company (other than
restrictions or conditions generally applicable to tariffs of that type).
Each such FCC Tariff has been accepted by the FCC. To our knowledge,
TeleHub Network Services Corporation is not in violation under the terms
and conditions of the FCC Tariffs.
36. The Company and TeleHub Network Services Corporation have the
consents or approvals, if any, of the FCC, and have made any necessary or
required filings, required for the consummation of the transactions
contemplated in the Operating Documents.
37. Neither the execution and delivery of the Purchase Agreement by
the Company nor the performance by the Company of its obligations under
the Operative Documents, including the Purchase Agreement, will violate
the Communications Act.
38. Exhibit B hereto accurately and completely lists all of the
certificates and authorizations of TeleHub Network Services Corporation in
the states listed thereon. TeleHub Network Services Corporation has the
certificates and authorizations, if any, required by the state
telecommunications laws (collectively the "State Licenses") for the
provision of intrastate telecommunications services the states listed in
Exhibit B.
39. To our knowledge, TeleHub Network Services Corporation is not
subject to any pending or threatened complaint, investigation or
proceeding before the appropriate regulatory authority in the states
listed in Exhibit B based on any alleged violation by TeleHub Network
Services Corporation or any Subsidiary in connection with its provision of
or failure to provide telecommunications services.
40. To our knowledge, (i) the States Licenses are validly issued;
(ii) the State Licenses are in full force and effect and are not subject
to conditions outside the ordinary course; and (iii) all express
conditions in the States Licenses have been satisfied.
41. The statements in the Offering memorandum under the headings of
"Risk Factors-Competition," "Risk Factors-Regulation,"
"Business-Competition," "Business-Regulation" and "Business-Litigation"
insofar as such statements constitute a summary of the legal matters,
documents or proceedings with respect to telecommunications matters
referred to therein, are accurate in all material respect, and fairly
summarize the matters therein described.
42. All regulatory tariffs applicable to the TeleHub Network Services
Corporation's intrastate operations are in full force and effect in
accordance with their terms, and to our knowledge, there is no outstanding
notice of suspension, cancellation or termination or any threatened
suspension, cancellation or termination
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<PAGE> 44
with respect to any such tariffs. TeleHub Network Services Corporation is
not subject to any restrictions or conditions applicable to its such
tariffs that limit or would limit the operations of TeleHub Network
Services Corporation (other than restrictions or conditions generally
applicable to tariffs of that type). Each such tariff has been accepted
by the appropriate state regulatory authority. To our knowledge, TeleHub
Network Services Corporation is not in violation under the terms and
conditions of such tariffs.
43. Neither the execution and delivery of the Operative Documents,
including the Purchase Agreement by the Company, nor the performance by
the Company, of its obligations under the Operative Documents, including
the Purchase Agreement will violate the state telecommunications laws if
the states listed in Exhibit B.
44. No facts have come to our attention, who regularly render service
on behalf of the Company, to cause us to believe, and we have no reason to
believe, that as of the Closing Date, the statements in the Offering
Memorandum under the captions "Risk Factors-Competition," "Risk
Factors-Regulation," "Business- Competition," "Business-Regulation" and
"Business-Litigation" that pertain to the federal telecommunications laws
or the state telecommunications laws of the states listed in Exhibit B,
contained or contains any untrue statement of a material fact or omitted
or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading.
In addition, such counsel shall state that it has participated in
conferences with officers and other representatives of the Company and the
Guarantors, representatives of the independent certified public
accountants of the Company and the Guarantors and representatives of the
Initial Purchaser and its counsel at which the contents of the Preliminary
Offering Memorandum and the Offering Memorandum and related matters were
discussed and, although it has not undertaken to investigate or verify
independently, and does not assume any responsibility for, the accuracy,
completeness or fairness of the statements contained in the Preliminary
Offering Memorandum or the Offering Memorandum (except as indicated
above), on the basis of the foregoing (relying as to materiality to the
extent such counsel deems appropriate upon facts provided to such counsel
by officers or other representatives of the Company and the Guarantors and
without independent verification of such facts), no facts have come to its
attention which led it to believe that the Preliminary Offering Memorandum
as of its date or the Offering Memorandum, as of its date or the Closing
Date, contained an untrue statement of a material fact or omitted to state
any fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading (except as to financial statements and related notes, the
financial statement schedules and other financial and statistical data
included or required to be included therein).
C-9
<PAGE> 45
EXHIBIT D
Form of Opinion of Morrison & Foerster LLP
1. The CPUC, by Decision No. 97-08-023, issued on August 1, 1997, has
authorized Pacific TeleHub Network Services Corporation to provide
interLATA and IntraLATA telephone service within the State of California
as a facilities-based reseller. Such Decision is hereinafter referred to
as the "CA License."
2. TeleHub, by a letter dated September 12, 1997, from its Executive Vice
President Barry C. Lescher to the CPUC informed the CPUC that TeleHub
accepted the authority granted by Decision No. 97-08-023, and by a letter
dated December 12, 1997, informed the CPUC that it had exercised the
authority granted by the CA-License. Therefore, TeleHub has taken all
actions necessary to activate the authority granted by Decision No.
97-08-23 within the time period permitted by that Decision. The CA
License and the filings set forth in Paragraph 2 and all of the
certificates, licenses, authorizations, consents and orders required by
the CA Telecommunications Laws for TeleHub's provision of intrastate
telecommunications in California. TeleHub has no pending applications
before the CPUC. The CA License is validly issued, in full force and
effect and not subject to conditions outside of the ordinary course and
all express conditions in the CA License have been satisfied.
3. TeleHub has informed us, as set forth in the Declarations, that there
are no formal or informal complaints pending before the CPUC or the
California Attorney General of any kind including any accusation that
TeleHub has violated California Public Utility code Section 2889.5
regarding "slamming," or any other California rule, regulation, or
statute, and we have not been served with or otherwise notified of any
such complaints pending against TeleHub as of the date of this opinion. A
review of the files of this law firm has not revealed any formal or
informal complaints against TeleHub and an inquiry to the CPUC as of
________, 1998 did not reveal any such complaints.
4. The statements in the Preliminary Offering Memorandum and the Offering
Memorandum under the headings of "Risk Factors--Competition," "Risk
Factors--Regulation," "Business--Competition," "Business--Regulation," and
"Business--Litigation," insofar as such statements constitute a summary of
the legal matters, documents, or proceedings of the CPUC or the CA
Telecommunications Laws with respect to telecommunications referred to
therein, are accurate in all material respects, and fairly summarize the
matters therein described. We express no opinion with respect to the
outcome of any pending matters therein described and note that the CPUC
may modify any existing policy, decision, or regulation in the future.
5. By the CA-License, TeleHub is not required to file tariffs with the
CPUC.
6. TeleHub is not required to obtain approval of or obtain any consent or
authorization, license or order of, or make any filing with the CPUC for
either the
D-1
<PAGE> 46
execution and delivery of the Operative Documents, including the Purchase
Agreement or for the performance of TeleHub of its respective obligations
under the Operating Documents, including the Purchase Agreement. Neither
the execution and delivery of the Operative Documents, including the
Purchase Agreement by TeleHub nor the performance by TeleHub will violate
the CA Telecommunications Laws.
7. Based on the representations contained in the Declarations, TeleHub has
no retail end-user billings in California. Therefore, TeleHub is not
liable for any CPUC-imposed surcharges as of the date of the Declarations.
8. Based on the above described information disclosed to Morrison &
Foerster LLP by TeleHub, an inquiry of the CPUC as of _________, 1998,
appropriate files of this firm and an inquiry of lawyers in this firm who
had substantial responsibility for TeleHub's legal matters handled by this
firm, TeleHub is not as of the date hereof the subject to any final
adverse order, decree or ruling of the CPUC. As used herein, the term
"adverse" means a revocation of or material restriction upon, the specific
existing Certificate of Public Convenience and Necessity granted to
TeleHub by the CA-License, or a finding that TeleHub has specifically
violated the Code or any CPUC decision, regulation, or order, including,
but not limited to the imposition of proprietary forfeitures or penalties.
TeleHub has (a) operated in compliance with the CA Telecommunications Laws
and (b) filed with the CPUC all applications, statements, reports,
tariffs, information forms, or any other document required under the CA
Telecommunications Laws, except where the failure to so file would not
have a material adverse effect on TeleHub's ability to provide its
respective services as described in the Preliminary Offering Memorandum
and the Offering Memorandum, and, to our knowledge, such filings and
submissions were in compliance with applicable laws or regulations when
filed or submitted and no deficiencies have been asserted by the CPUC with
respect to such filings or submissions except where the deficiency is of
such a nature that failure to cure any such deficiency would not have a
material adverse effect on TeleHub's ability to provide its respective
services as described in the Preliminary Offering Memorandum and the
Offering Memorandum, and to our knowledge, the information contained in
such filings or submissions was and continues to be in all material
respects, accurate, complete and up-to-date at the time the filings or
submissions were made.
We do not herein give any option with respect to the laws of any
jurisdiction other than the laws of the State of California.
This opinion is given by us as special regulatory counsel for TeleHub as
of the date hereof and we undertake no obligation, and hereby disclaim any
obligation, to update or supplement this opinion in respect to subsequent
changes in the law or future events affecting the transactions
contemplated by the Operative Documents including the Purchase Agreement.
We do not give any opinion except as set forth above. This opinion is
being furnished only to BancBoston Securities Inc. and is solely for its
benefit and may not be used, circulated, quoted or relied upon or
otherwise referred to for any purposes without our express prior written
consent.
D-2
<PAGE> 47
D-3
<PAGE> 1
EXHIBIT 10.2
WARRANT AGREEMENT
Dated as of July 30, 1998
between
TELEHUB COMMUNICATIONS CORPORATION
and
STATE STREET BANK AND TRUST COMPANY
<PAGE> 2
WARRANT AGREEMENT dated as of July 30, 1998 (the "Agreement") between
TELEHUB COMMUNICATIONS CORPORATION, a Nevada corporation (the "Company"), and
STATE STREET BANK AND TRUST COMPANY, as warrant agent (the "Warrant Agent").
WHEREAS, the Company proposes to issue 125,000 common stock purchase
warrants, as hereinafter described (the "Warrants"), to purchase up to an
aggregate of 2,082,732 shares of Common Stock (as defined below), subject to
adjustment, in connection with the offering of an aggregate principal amount at
maturity of $125,000,000 of the Company's 13 7/8% Senior Discount Notes due
2005 (the "Notes"). Each Warrant entitles the holder thereof to purchase
16.661856 shares of Common Stock. Each Warrant will also entitle the holder
thereof to purchase an additional 8.678048 shares of Common Stock, subject to
adjustment, if on or before July 31, 1999, the Company has not (a) consummated
an initial public offering of shares of Common Stock in which the Company has
received gross proceeds of at least $25 million (a "Qualified IPO"), (b)
repurchased all outstanding Notes, or (c) consummated a merger pursuant to
which the shares of Common Stock are converted into securities traded on NASDAQ
or a national securities exchange and have a market value of at least $100
million. The Notes and Warrants will be sold in units (the "units"), each unit
consisting of $1,000 principal amount at maturity of Notes and one Warrant.
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance of Warrant Certificates (as defined below) and other matters as
provided herein.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, and for the purpose of defining the respective rights and
obligations of the Company, the Warrant Agent and the Holders (as defined
below), the parties hereto agree as follows:
Section 1. Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
"Affiliate" of any person means any person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such person. For purposes of this definition, "control" when used with respect
to any person means the power to direct the management and policies of such
person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Commission" means the Securities and Exchange Commission.
<PAGE> 3
"Common Stock" means the common stock, par value $0.001 per share, of the
Company, and any other capital stock of the Company into which such common
stock may be converted or reclassified or that may be issued in respect of, in
exchange for, or in substitution for, such common stock by reason of any stock
splits, stock dividends, distributions, mergers, consolidations or other like
events.
"Company" means TeleHub Communications Corporation, a Nevada corporation,
and its successors and assigns.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exercise Event" means the earlier to occur of (i) 90 days after any
underwritten primary public offering of shares of Common Stock (other than
Disqualified Stock as defined in the Indenture) registered under the Securities
Act (other than a public offering registered on Form S-8 under the Securities
Act), (ii) a consolidation, merger or purchase of assets of the Company or any
of its subsidiaries that results in the Common Stock becoming subject to
registration under the Exchange Act or (iii) the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the Company.
"Exercise Price" means the purchase price per share of Common Stock to be
paid upon the exercise of each Warrant in accordance with the terms hereof,
which price shall initially be $.01 per share, subject to adjustment from time
to time pursuant to Section 13 hereof.
"Expiration Date" means July 31, 2005.
"Holder" means a person who owns Registrable Securities.
"Indenture" means the indenture, dated the date hereof, between the
Company and State Street Bank and Trust Company, as trustee.
"Initial Purchaser" means BancBoston Securities Inc.
"Issue Date" means the date of this Agreement.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
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<PAGE> 4
"Principal Office of Warrant Agent" means the Warrant Agent's office
located at Boston, Massachusetts or such other office of the Warrant Agent as
the Warrant Agent shall designate from time to time in writing as its Principal
Office for the purposes of this Agreement.
"Registrable Securities" means any of (i) the Warrant Shares and (ii) any
other securities issued or issuable with respect to any Warrant Shares by way
of stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise,
unless, in each case, such Warrant Shares and securities, if any, have been
offered and sold to the Holder pursuant to an effective Registration Statement
under the Securities Act declared effective prior to the exercisability of the
Warrants or such Warrant Shares and securities, if any, may be sold to the
public pursuant to Rule 144 without any restriction on the amount of securities
which may be sold by such Holder or the satisfaction of any condition. As to
any particular Registrable Securities held by a Holder, such securities shall
cease to be Registrable Securities when (i) a Registration Statement with
respect to the exercise or offering of such securities by the Holder thereof
shall have been declared effective under the Securities Act and such securities
shall have been exercised and/or disposed of by such Holder pursuant to such
Registration Statement, (ii) such securities may at the time of determination
be sold to the public pursuant to Rule 144 without any restriction on the
amount of securities which may be sold by such Holder (or any similar provision
then in force, but not Rule 144A) promulgated under the Securities Act without
the lapse of any further time or the satisfaction of any condition, (iii) such
securities shall have been otherwise transferred by such Holder and new
certificates for such securities not bearing a legend restricting further
transfer shall have been delivered by the Company or its transfer agent and
subsequent disposition of such securities shall not require registration or
qualification under the Securities Act or any similar state law then in force
or (iv) such securities shall have ceased to be outstanding.
"Registration Rights Agreement" means the registration rights agreement,
dated as of the date hereof by and among the Company and the Initial Purchaser
relating to the Notes.
"Securities Act" means the Securities Act of 1933, as amended.
"Separation Date" means the earliest to occur of (i) October 30, 1998,
(ii) a Change in Control (as defined in the Indenture), (iii) the occurrence of
an Event of Default (as defined in the Indenture), (iv) the date on which a
registration statement with respect to the Notes or an Exchange Offer (as
defined in the Registration Rights Agreement) for the Notes is declared
effective, or (v) such earlier date as may be determined by BancBoston
Securities Inc.
"Trustee" means the trustee under the Indenture.
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<PAGE> 5
"Warrant Agent" means State Street Bank and Trust Company or the successor
or successors of such Warrant Agent appointed in accordance with the terms
hereof.
"Warrant Registration Rights Agreement" means the registration rights
agreement, dated as of July 30, 1998, between the Company and the Initial
Purchaser relating to the Warrants and the Warrant Shares.
"Warrant Shares" means the shares of Common Stock issued or issuable upon
the exercise of the Warrants.
Section 2. Appointment of Warrant Agent. The Company hereby appoints the
Warrant Agent to act as agent for the Company in accordance with the
instructions set forth hereinafter in this Agreement, and the Warrant Agent
hereby accepts such appointment.
Section 3. Issuance of Warrants: Warrant Certificates. The Warrants will
be issued in the form of one or more global certificates (the "Global
Warrants"), substantially in the form of Exhibit A (including footnote 1
thereto). The Global Warrants shall be deposited on the Issue Date with, or on
behalf of, The Depositary Trust Company (the "Depositary") and registered in
the name of Cede & Co., as the Depositary's nominee. Each Global Warrant shall
represent such of the outstanding Warrants as shall be specified therein and
each shall provide that it shall represent the aggregate amount of outstanding
Warrants from time to time endorsed thereon and that the aggregate amount of
outstanding Warrants represented thereby may from time to time be reduced or
increased, as appropriate. Upon request, a Holder may receive from the
Depositary and the Warrant Agent Warrants in definitive form (the "Definitive
Warrants"), substantially in the form of Exhibit A (not including footnote 1
thereto) as set forth in Section 7 below. Any certificates (the "Warrant
Certificates") evidencing the Global Warrants or the Definitive Warrants to be
delivered pursuant to this Agreement shall be substantially in the form set
forth in Exhibit A attached hereto.
Section 4. Execution of Warrant Certificates. Warrant Certificates shall
be signed on behalf of the Company by its Chairman of the Board, President,
Vice President or by its Secretary or an Assistant Secretary. Each such
signature upon the Warrant Certificates may be in the form of a facsimile
signature of the present or any future Chairman of the Board, President, Vice
President, Secretary or Assistant Secretary and may be imprinted or otherwise
reproduced on the Warrant Certificates and for that purpose the Company may
adopt and use the facsimile signature of any person who shall have been
Chairman of the Board, President, Vice President, Secretary or Assistant
Secretary, notwithstanding the fact that at the time the Warrant Certificates
shall be countersigned and delivered or disposed of, such person shall have
ceased to hold such
-4-
<PAGE> 6
office. The seal of the Company may be in the form of a facsimile thereof and
may be impressed, affixed, imprinted or otherwise reproduced on the Warrant
Certificates.
In case any officer of the Company who shall have signed any of the
Warrant Certificates shall cease to be such officer before the Warrant
Certificates so signed shall have been countersigned by the Warrant Agent, or
disposed of by the Company, such Warrant Certificates nevertheless may be
countersigned and delivered or disposed of as though such person had not ceased
to be such officer of the Company; and any Warrant Certificate may be signed on
behalf of the Company by any person who, at the actual date of the execution of
such Warrant Certificate, shall be a proper officer of the Company to sign such
Warrant Certificate, although at the date of the execution of this Warrant
Agreement any such person was not such officer.
Warrant Certificates shall be dated the date of countersignature.
Section 5. Separation of Warrants. The Notes and Warrants shall not be
separately transferable prior to the Separation Date.
Section 6. Registration and Countersignature. The Warrant Agent, on
behalf of the Company, shall number and register the Warrant Certificates in a
register as they are issued by the Company.
Warrant Certificates shall be manually countersigned by the Warrant Agent
and shall not be valid for any purpose unless so countersigned. The Warrant
Agent shall, upon written instructions of the Chairman of the Board, the
President, a Vice President, the Treasurer or the Controller of the Company,
initially countersign, issue and deliver Warrants entitling the Holders thereof
to purchase not more than the number of Warrant Shares referred to above in the
first recital hereof and shall countersign and deliver Warrants as otherwise
provided in this Agreement.
The Company and the Warrant Agent may deem and treat the Holder(s) of the
Warrant Certificates as the absolute owner(s) thereof (notwithstanding any
notation of ownership or other writing thereon made by anyone), for all
purposes, and neither the Company nor the Warrant Agent shall be affected by
any notice to the contrary. Prior to a Separation Date, the registered holder
of the Unit shall be deemed the registered Holder of such Warrants for all
purposes hereunder.
Section 7. Registration of Transfers and Exchanges.
(a) Transfer and Exchange of Global Warrants. The transfer and exchange
of Global Warrants or beneficial interests therein shall be effected through
the Depositary, in accordance with this Warrant Agreement and the procedures of
the Depositary therefor.
-5-
<PAGE> 7
(b) Exchange of a Beneficial Interest in a Global Warrant for a
Definitive Warrant.
(i) Any person having a beneficial interest in a Global Warrant may upon
request exchange such beneficial interest for a Definitive Warrant. Upon
receipt by the Warrant Agent of written instructions or such other form of
instructions as is customary for the Depositary from the Depositary or its
nominee on behalf of any person having a beneficial interest in a Global
Warrant and, in the case of a Registrable Security, the following additional in
formation and documents (all of which may be submitted by facsimile), as
applicable:
(A) if such beneficial interest is being delivered to the person
designated by the Depositary as being the beneficial owner, a
certification from such beneficial owner to that effect (in substantially
the form of Exhibit B hereto);
(B) if such beneficial interest is being transferred (1) to a
"qualified institutional buyer" (as defined in Rule 144A under the
Securities Act) in accordance with Rule 144A under the Securities Act or
(2) pursuant to an exemption from registration in accordance with Rule 144
under the Securities Act (and based on an opinion of counsel if the
Company or the Warrant Agent so requests) or (3) pursuant to an effective
registration statement under the Securities Act, a certification to that
effect (in substantially the form of Exhibit B hereto);
(C) if such beneficial interest is being transferred to any
institutional "accredited investor," within the meaning of Rule 501(a)(1),
(2), (3) and (7) under the Securities Act pursuant to a private placement
exemption from the registration requirements of the Securities Act (and
based on an opinion of counsel if the Company or the Warrant Agent so
requests), a certification to that effect (in substantially the form of
Exhibit B hereto) and a certification from the applicable transferee (in
substantially the form of Exhibit C hereto);
(D) if such beneficial interest is being transferred pursuant to an
exemption from registration in accordance with Rule 904 under the
Securities Act (and based on an opinion of counsel if the Company or the
Warrant Agent so requests), a certification to that effect (in
substantially the form of Exhibit B); or
(E) if such beneficial interest is being transferred in reliance on
another exemption from the registration requirements of the Securities Act
(and based on an opinion of counsel if the Company or the Warrant Agent so
requests), a certification to that effect (in substantially the form of
Exhibit B hereto);
then, in accordance with the standing instructions and procedures existing
between the Depositary and Warrant Agent, the Warrant Agent shall cause the
number of Warrants
-6-
<PAGE> 8
and Warrant Shares represented by the Global Warrant to be reduced by the
number of Warrants and Warrant Shares to be represented by the Definitive
Warrants to be issued in exchange for the interest in the Global Warrant
and, following such reduction, the Company shall execute and the Warrant Agent
shall countersign and deliver to the transferee, as the case may be, a
Definitive Warrant.
(ii) Definitive Warrants issued in exchange for a beneficial interest
in a Global Warrant pursuant to this Section 7(b) shall be registered in such
names as the Depositary, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Warrant Agent. The Warrant Agent
shall deliver such Definitive Warrants to the persons in whose names such
Warrants are so registered.
(c) Transfer and Exchange of Definitive Warrants. When Definitive
Warrants are presented to the Warrant Agent with a request:
(i) to register the transfer of the Definitive Warrants; or
(ii) to exchange such Definitive Warrants for an equal number of
Definitive Warrants of other authorized denominations, the Warrant Agent shall
register the transfer or make the exchange as requested if the following
requirements are met:
(x) the Definitive Warrants presented or surrendered for
registration of transfer or exchange shall be duly endorsed or accompanied
by a written instruction of transfer in form satisfactory to the Warrant
Agent, duly executed by the Holder thereof or by his attorney, duly
authorized in writing; and
(y) in the case of Registrable Securities, such request shall be
accompanied by the following additional information and documents (all of
which may be submitted by facsimile), as applicable:
(A) if such Registrable Security is being delivered to the Warrant
Agent by a Holder for registration in the name of such Holder, without
transfer, a certification from such Holder to that effect (in
substantially the form of Exhibit B hereto);
(B) if such Registrable Security is being transferred (1) to a
"qualified institutional buyer" (as defined in Rule 144A under the
Securities Act) in accordance with Rule 144A under the Securities Act or
(2) pursuant to an exemption from registration in accordance with Rule 144
under the Securities Act (and based on an opinion of counsel if the
Company or the Warrant Agent so requests) or (3) pursuant to an effective
registration statement under the Securities Act, a certification to that
effect (in substantially the form of Exhibit B hereto);
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<PAGE> 9
(C) if such Registrable Security is being transferred to an
institutional "accredited investor," within the meaning of Rule 501(a)(1),
(2), (3) or (7) under the Securities Act pursuant to a private placement
exemption from the registration requirements of the Securities Act (and
based on an opinion of counsel if the Company or the Warrant Agent so
requests), a certification to that effect (in substantially the form of
Exhibit B hereto) and a certification from the applicable transferee (in
substantially the form of Exhibit C hereto);
(D) if such Registrable Security is being transferred pursuant to an
exemption from registration in accordance with Rule 904 under the
Securities Act (and based on an opinion of counsel if the Company or the
Warrant Agent so requests), a certification to that effect (in
substantially the form of Exhibit B hereto); or
(E) if such Registrable Security is being transferred in reliance on
another exemption from the registration requirements of the Securities Act
(and based on an opinion of counsel if the Company or the Warrant Agent so
requests), a certification to that effect (in substantially the form of
Exhibit B hereto).
(d) Restrictions on Exchange or Transfer of a Definitive Warrant for a
Beneficial Interest in a Global Warrant. A Definitive Warrant may not be
exchanged for a beneficial interest in a Global Warrant except upon
satisfaction of the requirements set forth below. Upon receipt by the Warrant
Agent of a Definitive Warrant, duly endorsed or accompanied by appropriate
instruments of transfer, in form satisfactory to the Warrant Agent, together
with:
(i) if such Definitive Warrant is a Registrable Security,
certification from the Holder thereof (in substantially the form of Exhibit B
hereto) to the effect that such Definitive Warrant is being transferred by such
Holder either (A) to a "qualified institutional buyer" (as defined in Rule 144A
under the Securities Act) in accordance with Rule 144A under the Securities Act
(and based on an opinion of counsel if the Company or the Warrant Agent so
requests), (B) outside the United States, to a foreign person in a transaction
meeting the requirements of Rule 904 under the Securities Act (and based on an
opinion of counsel if the Company or the Warrant Agent so requests) or (C) to
an institutional "accredited investor" within the meaning of Rule 501(a)(1),
(2), (3) or (7) under the Securities Act pursuant to a private placement
exemption from the registration requirements of the Securities Act who has
provided a certification to that effect (and based on an opinion of counsel if
the Company or the Warrant Agent so requests) who wishes to take delivery
thereof in the form of a beneficial interest in a Global Warrant; and
(ii) whether or not such Definitive Warrant is a Registrable Security,
written instructions directing the Warrant Agent to make, or to direct the
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<PAGE> 10
Depositary to make, an endorsement on the Global Warrant to reflect an increase
in the number of Warrants and Warrant Shares represented by the Global Warrant,
then the Warrant Agent shall cancel such Definitive Warrant and cause, or
direct the Depositary to cause, in accordance with the standing instructions
and procedures existing between the Depositary and the Warrant Agent, the
number of Warrants and Warrant Shares represented by the Global Warrant to be
increased accordingly. If no Global Warrants are then outstanding, the Company
shall issue and the Warrant Agent shall countersign a new Global Warrant
representing the appropriate number of Warrants and Warrant Shares.
(e) Restrictions on Transfer and Exchange of Global Warrants.
Notwithstanding any other provisions of this Warrant Agreement (other than the
provisions set forth in subsection (f) of this Section 7), a Global Warrant may
not be transferred as a whole except by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(f) Countersigning of Definitive Warrants in Absence of Depositary. If at
any time:
(i) the Depositary for the Global Warrants notifies the Company that
the Depositary is unwilling or unable to continue as Depositary for the Global
Warrants and a successor Depositary for the Global Warrants is not appointed by
the Company within 90 days after delivery of such notice; or
(ii) the Company, in its sole discretion, notifies the Warrant Agent in
writing that it elects to cause the issuance of Definitive Warrants under this
Warrant Agreement, then the Company shall execute, and the Warrant Agent, upon
receipt of written instructions signed by two officers of the Company, shall
countersign and deliver Definitive Warrants, in an aggregate number equal to
the number of Warrants represented by Global Warrants, in exchange for such
Global Warrants.
(g) Legends.
(i) Except for any Registrable Security sold or transferred (including
any Registrable Security represented by a Global Warrant) as discussed in
clause (ii) below, each Warrant Certificate evidencing the Global Warrants and
the Definitive Warrants (and all Warrants issued in exchange therefor or
substitution thereof) and each certificate representing the Warrant Shares
shall bear a legend in substantially the following form:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS
ORIGINALLY ISSUED IN A TRANSACTION
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<PAGE> 11
EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND
THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE
SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER
MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION
5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE
HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT
OF THE ISSUER THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED, ONLY (1)(a) TO A PERSON WHO THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A , (b) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A PERSON THAT
IS NOT A U.S. PERSON (AS DEFINED IN RULE 902 UNDER THE
SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 904 UNDER THE SECURITIES ACT, (d) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3)
OR (7) OF REGULATION D UNDER THE SECURITIES ACT) THAT, PRIOR
TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE AND WARRANT AGENT A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE WARRANTS (THE FORM OF WHICH LETTER
CAN BE OBTAINED FROM THE WARRANT AGENT) OR (e) IN ACCORDANCE
WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT (IN THE CASE OF (b), (c), (d) or (e), UPON
AN OPINION OF COUNSEL IF THE ISSUER OR WARRANT AGENT,
REGISTRAR OR TRANSFER AGENT FOR THE SECURITIES SO REQUESTS),
(2) TO THE ISSUER OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
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<PAGE> 12
OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND
EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER
FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE
RESTRICTIONS SET FORTH IN (A) ABOVE."
(ii) Upon any sale or transfer of a Registrable Security (including
any Registrable Security represented by a Global Warrant) pursuant to an
effective registration statement under the Securities Act, pursuant to Rule 144
under the Securities Act or pursuant to an opinion of counsel reasonably
satisfactory to the Company and addressed to the Warrant Agent that no legend
is required:
(A) in the case of any Registrable Security that is a Definitive Warrant,
the Warrant Agent shall permit the Holder thereof to exchange such Registrable
Security for a Definitive Warrant that does not bear the legend set forth in
clause (i) above and rescind any restriction on the transfer of such
Registrable Security; and
(B) in the case of any Registrable Security represented by a Global
Warrant, such Registrable Security shall not be required to bear the legend set
forth in clause (i) above but shall continue to be subject to the provisions of
Section 7(c) hereof; provided, however, that with respect to any request for an
exchange of a Registrable Security that is represented by a Global Warrant for
a Definitive Warrant that does not bear the legend set forth in clause (i)
above, which request is made in reliance upon Rule 144 (and based upon an
opinion of counsel if the Company or the Warrant Agent so requests), the Holder
thereof shall certify in writing to the Warrant Agent that such request is
being made pursuant to Rule 144 (such certification to be substantially in
the form of Exhibit B hereto).
(h) Cancellation of Global Warrant. At such time as all beneficial
interests in Global Warrants have either been exchanged for Definitive
Warrants, redeemed, repurchased or cancelled, all Global Warrants shall be
returned to or retained and cancelled by the Warrant Agent.
(i) Obligations with respect to Transfers and Exchanges of Warrants.
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Warrant Agent is hereby authorized to countersign, in
accordance with the provisions of Section 6 and this Section 7, Definitive
Warrants and Global Warrants as required pursuant to the provisions of this
Section 7.
(ii) All Definitive Warrants and Global Warrants issued upon any
registration of transfer or exchange of Definitive Warrants or Global Warrants
shall be the valid obligations of the Company, entitled to the same benefits
under this Warrant
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<PAGE> 13
Agreement, as the Definitive Warrants or Global Warrants surrendered upon such
registration of transfer or exchange.
(iii) Prior to due presentment for registration of transfer of any
Warrant, the Warrant Agent and the Company may deem and treat the person in
whose name any Warrant is registered as the absolute owner of such Warrant and
neither the Warrant Agent, nor the Company shall be affected by notice to the
contrary.
(iv) No service charge shall be made to a Holder for any registration,
transfer or exchange.
Section 8. Terms of Warrants: Exercise of Warrants. Subject to the terms
of this Agreement, each Warrant Holder shall have the right, which may be
exercised commencing at 9:00 a.m., New York City time, on the earliest to occur
of (i) the Separation Date, (ii) the Exercise Event, (iii) a registration
statement under the Securities Act relating to the Warrant Shares has been
filed with, and declared effective by, the Commission, and no stop order
suspending the effectiveness of such registration statement has been issued by
the Commission or (iv) the issuance of the Warrant Shares is permitted pursuant
to an exemption from the registration requirements of the Securities Act (the
first such date to occur, the "Exercise Date") and ending at 5:00 p.m., New
York City time, on the Expiration Date, to receive from the Company the number
of fully paid and nonassessable Warrant Shares which the Holder may at the time
be entitled to receive on exercise of such Warrants and payment of the Exercise
Price then in effect for such Warrant Shares. Subject to the provisions of the
following paragraph of this Section 8, each Warrant not exercised prior to 5:00
p.m., New York City time, on the Expiration Date shall become void and all
rights thereunder and all rights in respect thereof under this Agreement shall
cease as of such time. No adjustments as to dividends will be made upon
exercise of the Warrants except to the extent set forth in Section 13(d).
The Company shall give notice not less than 90, and not more than 120,
days prior to the Expiration Date to the Holders of all then outstanding
Warrants to the effect that the Warrants will terminate and become void as of
5:00 p.m., New York City time, on the Expiration Date. If the Company fails to
give such notice, the Warrants will not expire until 90 days after the date the
Company gives such notice, provided, however, in no event will Holders be
entitled to any damages or other remedy for the Company's failure to give such
notice other than any such extension.
A Warrant may be exercised upon surrender to the Company at the Principal
Office of the Warrant Agent of the certificate or certificates evidencing the
Warrant to be exercised with the form of election to purchase on the reverse
thereof properly completed and signed, which signature shall be guaranteed by a
bank or trust company having an office or correspondent in the United States or
a broker or dealer which is a member of a registered securities exchange or the
National Association of
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<PAGE> 14
Securities Dealers, Inc., and upon payment to the Warrant Agent for the account
of the Company of the Exercise Price as adjusted as herein provided, for each
of the Warrant Shares in respect of which such Warrant is then exercised.
Payment of the aggregate Exercise Price shall be made in cash or by certified
or official bank check, payable to the order of the Company if a registration
statement relating to the issuance of Warrant Shares upon exercise of the
Warrant is then in effect. In the alternative, each Holder may exercise its
right to receive Warrant Shares (i) on a net basis, such that without the
exchange of any funds, the Holder receives that number of Warrant Shares
otherwise issuable upon exercise of its Warrants (and to which such exercise
relates) less that number of Warrant Shares having a fair market value equal to
the aggregate Exercise Price that would otherwise have been paid by the Holder
for the Warrant Shares being issued, (ii) by tendering Notes having an
accredited value, plus accrued but unpaid interest, if any, thereon, to the
date of exercise equal to the aggregate Exercise Price that would otherwise
have been paid by the Holder for the Warrant Shares being issued, or (iii) by a
combination of the procedures in clauses (i) and (ii). For purposes of the
foregoing sentence, "fair market value" of the Warrant Shares shall be as
determined by the Board of Directors of the Company in good faith. The Company
shall notify the Warrant Agent in writing of any such determination of fair
market value. The exercise of Warrants by Holders of beneficial interest in
Global Warrants shall be effected in accordance with this Agreement and the
procedures of the Depositary therefor.
Subject to the provisions of Section 9 hereof, upon surrender of Warrants
and payment of the Exercise Price as provided above, the Warrant Agent shall
thereupon promptly notify the Company, and the Company shall promptly transfer
to the Holder of such Warrant Certificate a certificate or certificates for the
appropriate number of Warrant Shares or other securities or property (including
any money) to which the Holder is entitled, registered or otherwise placed in,
or payable to the order of, such name or names as may be directed in writing by
the Holder, and shall deliver such certificate or certificates representing the
Warrant Shares and any other securities or property (including any money) to
the person or persons entitled to receive the same, together with an amount in
cash in lieu of any fraction of a share as provided in Section 15. Any such
certificate or certificates representing the Warrant Shares shall be deemed to
have been issued and any person so designated to be named therein shall be
deemed to have become a Holder of record of such Warrant Shares as of the date
of the surrender of such Warrants and payment of the Exercise Price.
The Warrants shall be exercisable commencing on the Exercise Date, at the
election of the Holders thereof, either in full or from time to time in part
and, in the event that a certificate evidencing Warrants is exercised in
respect of fewer than all of the Warrant Shares issuable on such exercise at
any time prior to the date of expiration of the Warrants, a new certificate
evidencing the remaining Warrant or Warrants will be issued, and the Warrant
Agent is hereby irrevocably authorized to countersign and to deliver the
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<PAGE> 15
required new Warrant Certificate or Certificates pursuant to the provisions of
this Section and of Section 4 hereof, and the Company, whenever required by the
Warrant Agent, will supply the Warrant Agent with Warrant Certificates duly
executed on behalf of the Company for such purpose.
All Warrant Certificates surrendered upon exercise of Warrants shall be
cancelled by the Warrant Agent. Such cancelled Warrant Certificates shall then
be disposed of by the Warrant Agent in a manner satisfactory to the Company.
The Warrant Agent shall account promptly to the Company with respect to
Warrants exercised and concurrently pay to the Company all monies received by
the Warrant Agent for the purchase of the Warrant Shares through the exercise
of such Warrants.
The Warrant Agent shall keep copies of this Agreement and any notices
given or received hereunder by or from the Company available for inspection by
the Holders, upon reasonable written notice, during normal business hours at
its Principal Office. The Company shall supply the Warrant Agent from time to
time with such numbers of copies of this Agreement as the Warrant Agent may
request.
Section 9. Payment of Taxes. The Company will pay all documentary stamp
taxes attributable to the initial issuance of Warrant Shares upon the exercise
of Warrants or to any separation of the Warrants from the Notes; provided,
however, that the Company shall not be required to pay any tax or taxes which
may be payable in respect of any transfer involved in the issue of any Warrant
Certificates or any certificates for Warrant Shares in a name other than that
of the Holder of a Warrant Certificate surrendered upon the exercise of a
Warrant, and the Company shall not be required to issue or deliver such Warrant
Certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
Section 10. Mutilated or Missing Warrant Certificates. In case any of the
Warrant Certificates shall be mutilated, lost, stolen or destroyed, the Company
may in its discretion issue and the Warrant Agent may countersign, in exchange
and substitution for and upon cancellation of the mutilated Warrant
Certificate, or in lieu of and substitution for the Warrant Certificate lost,
stolen or destroyed, a new Warrant Certificate of like tenor and representing
an equivalent number of Warrants, but only upon receipt of evidence reasonably
satisfactory to the Company and the Warrant Agent of such loss, theft or
destruction of such Warrant Certificate and indemnity, if requested, also
reasonably satisfactory to them. Applicants for such substitute Warrant
Certificates shall also comply with such other reasonable regulations and pay
such other reasonable charges as the Company or the Warrant Agent may
prescribe.
Section 11. Reservation of Warrant Shares. The Company will at all times
reserve and keep available, free from any preemptive rights imposed by the
Company, out
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<PAGE> 16
of the aggregate of its authorized but unissued Common Stock or its authorized
and issued Common Stock held in its treasury, for the purpose of enabling it to
satisfy any obligation to issue Warrant Shares upon exercise of Warrants, the
maximum number of shares of Common Stock which may then be or may become
deliverable upon the exercise of all outstanding Warrants.
The transfer agent for the Common Stock (the "Transfer Agent") and every
subsequent transfer agent for any shares of the Company's capital stock
issuable upon the exercise of any of the rights of purchase aforesaid will be
irrevocably authorized and directed at all times to reserve such number of
authorized shares as shall be required for such purpose. The Company will keep
a copy of this Agreement on file with the Transfer Agent and with every
subsequent transfer agent for any shares of the Company's capital stock
issuable upon the exercise of the rights of purchase represented by the
Warrants. The Warrant Agent is hereby irrevocably authorized to requisition
from time to time from such Transfer Agent the stock certificates required to
honor outstanding Warrants upon exercise thereof in accordance with the terms
of this Agreement. The Company will supply such Transfer Agent with duly
executed certificates for such purposes and will provide or otherwise make
available any cash which may be payable as provided in Section 15. The Company
will furnish such Transfer Agent a copy of all notices of adjustments and
certificates related thereto, transmitted to each Holder of the Warrants
pursuant to Section 16 hereof. Prior to the initial public offering of the
Common Stock of the Company, the Company may act as Transfer Agent for the
Common Stock. The Warrant Agent hereby agrees that it will not issue any stock
certificates delivered hereunder other than upon the exercise of Warrants in
accordance with the terms of this Agreement and, promptly after the issuance of
any such stock certificates, to notify the Transfer Agent of such issuance.
Before taking any action which would cause an adjustment pursuant to
Section 13 hereof that would reduce the Exercise Price below the then par value
(if any) of the Warrant Shares, the Company will take any corporate action
which may, in the opinion of its counsel (which may be counsel employed by the
Company), be necessary in order that the Company may validly and legally issue
fully paid and nonassessable Warrant Shares at the Exercise Price as so
adjusted.
The Company covenants that all Warrant Shares which may be issued upon
exercise of Warrants in accordance with the terms of this Agreement (including
the payment of the Exercise Price) will, upon issue, be duly and validly
issued, fully paid, nonassessable, and free of preemptive rights imposed by the
Company.
Section 12. Obtaining Stock Exchange Listings. The Company will from
time to time use its best efforts to take all action which may be necessary so
that the Warrant Shares, immediately upon their issuance upon the exercise of
Warrants, will be listed on the principal securities exchanges and markets
(including, without limitation, the
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<PAGE> 17
Nasdaq National Market) within the United States of America, if any, on which
other shares of Common Stock are then listed. Upon the listing of such Warrant
Shares, the Company shall notify the Warrant Agent in writing. The Company will
obtain and keep all required permits and records in connection with such
listing.
Section 13. Adjustment of Exercise Price and Number of Warrant Shares
Issuable. The number and kind of shares purchasable upon the exercise of
Warrants and the Exercise Price shall be subject to adjustment from time to
time (as set forth in the notices required by Section 16 hereof) as follows:
(a) Stock Splits, Combinations, etc. In case the Company shall hereafter
(a) pay a dividend or make a distribution on its Common Stock in shares of its
capital stock (whether shares of Common Stock or of capital stock of any other
class), (B) subdivide its outstanding shares of Common Stock, (C) combine its
outstanding shares of Common Stock into a smaller number of shares, or (D)
issue by reclassification of its shares of Common Stock any shares of capital
stock of the Company, the Exercise Price in effect and the number of Warrant
Shares issuable upon exercise of each Warrant immediately prior to such action
shall be adjusted so that the Holder of any Warrant thereafter exercised shall
be entitled to receive, for the same Exercise Price, the number of shares of
capital stock of the Company which such Holder would have owned immediately
following such action had such Warrant been exercised immediately prior
thereto. Any adjustment made pursuant to this paragraph shall become effective
immediately after the record date in the case of a dividend and shall become
effective immediately after the effective date in the case of a subdivision,
combination or reclassification. If, as a result of an adjustment made
pursuant to this paragraph, the Holder of any Warrant thereafter exercised
shall become entitled to receive shares of two or more classes of capital stock
of the Company, the Board of Directors of the Company (whose determination
shall be conclusive) shall determine the allocation of the adjusted Exercise
Price between or among shares of such classes of capital stock.
(b) Reclassification, Combinations, Mergers, etc. In case of any
reclassification or change of outstanding shares of Common Stock issuable upon
exercise of the Warrants (other than as set forth in paragraph (a) above and
other than a change in par value, or from par value to no par value, or from no
par value to par value or as a result of a subdivision or combination), or in
case of any consolidation or merger of the Company with or into another
corporation (other than a merger in which the Company is the continuing
corporation and which does not result in any reclassification or change of the
then outstanding shares of Common Stock or other capital stock issuable upon
exercise of the Warrants) or in case of any sale or conveyance to another
corporation of all or substantially all of the assets of the Company, then, as
a condition of such reclassification, change, consolidation, merger, sale or
conveyance, the Company or such a successor or purchasing corporation, as the
case may be, shall forthwith make lawful and adequate provision whereby the
Holder of each Warrant then outstanding shall have the
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<PAGE> 18
right thereafter to receive on exercise of such Warrant the kind and amount of
shares of stock and other securities and property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a Holder
of the number of shares of Common Stock issuable upon exercise of such Warrant
immediately prior to such reclassification, change, consolidation, merger, sale
or conveyance and enter into a supplemental warrant agreement so providing.
Such provisions shall include provision for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Section 13. If the issuer of securities deliverable upon exercise of Warrants
under the supplemental warrant agreement is an affiliate of the formed,
surviving or transferee corporation, that issuer shall join in the supplemental
warrant agreement. The above provisions of this paragraph (b) shall similarly
apply to successive reclassifications and changes of shares of Common Stock and
to successive consolidations, mergers, sales or conveyances.
(c) Issuance of Options or Convertible Securities. The Company shall not
during the time any Warrant is exercisable hereunder issue, sell, distribute or
otherwise grant in any manner (including by assumption) to all holders of the
Common Stock any rights to subscribe for or to purchase, or any warrants or
options for the purchase of, Common Stock or any stock or securities
convertible into or exchangeable for Common Stock (any such rights, warrants or
options being herein called "Options" and any such convertible or exchangeable
stock or securities being herein called "Convertible Securities") or any
Convertible Securities (other than upon exercise of any Option), whether or not
such Options or the rights to convert or exchange such Convertible Securities
are immediately exercisable, at a purchase price per share less than current
market price as determined under Section 13(e).
(d) Dividends and Distributions. (1) Until an initial public offering of
shares of Common Stock that is registered pursuant to the Securities Act and
pursuant to which the Company derives net proceeds of at least $50,000,000 (the
"IPO") the following provision with respect to the Warrants shall apply:
If, at any time or from time to time after the date of this Warrant
Agreement, the Company shall distribute to the holders of shares of Common
Stock (i) securities, (ii) property, other than cash, or (iii) cash, without
fair payment therefor, then, and in each such case, each Holder, upon the
exercise of any Warrant, shall be entitled to receive, without duplication for
any adjustment made elsewhere in this Section 13, such securities, property and
cash which the Holder would hold on the date of such exercise if, on the date
of this Warrant Agreement, the Holder had been the holder of record of the
shares of Common Stock subscribed for upon such exercise and, during the period
from the date of this Warrant Agreement to and including the date of such
exercise, had retained such shares of Common Stock and the securities, property
and cash receivable by the Holder during such period, subject, however, to the
Holder agreeing to any conditions to such distribution as were required of all
other Holders of shares of Common Stock in
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<PAGE> 19
connection with such distribution. If the securities to be distributed by the
Company involve rights, warrants, options or any other form of convertible
securities and the right to exercise or convert such securities would expire in
accordance with its terms prior to the exercise of any Warrant, then the terms
of such securities shall provide that such exercise or convertibility right
shall remain in effect until thirty (30) days after the date the Holder
receives such securities pursuant to the exercise of such Holder's Warrant.
(2) From and after the IPO, the following provision with respect to the
Warrants shall apply:
In the event the Company shall, at any time or from time to time after the
date hereof, distribute to all the holders of Common Stock any dividend or
other distribution of cash, evidences of its indebtedness, other securities or
other properties or assets (in each case other than (i) dividends payable in
Common Stock, Options or Convertible Securities and (ii) any cash dividend
that, when added to all other cash dividends paid in the one year prior to the
declaration date of such dividend (excluding any such other dividend included
in a previous adjustment of the Exercise Price pursuant to this paragraph (d)
and excluding any cash dividends or other cash distributions from current or
retained earnings), does not exceed 5% of the current market price per share of
Common Stock on such declaration date), or any options, warrants or other
rights to subscribe for or purchase any of the foregoing, then (A) the Exercise
Price shall be decreased to a price determined by multiplying the Exercise
Price then in effect by a fraction, the numerator of which shall be the current
market price per share of Common Stock on the record date for such distribution
less the sum of (X) the cash portion, if any, of such distribution per share of
Common Stock outstanding (exclusive of any treasury shares) on the record date
for such distribution plus (Y) the then fair market value (as determined in
good faith by the Board of Directors of the Company) per share of Common Stock
outstanding (exclusive of any treasury shares) on the record date for such
distribution of that portion, if any, of such distribution consisting of
evidences of indebtedness, other securities, properties, assets, options,
warrants or subscription or purchase rights, and the denominator of which shall
be such current market price per share of Common Stock and (B) the number of
shares of Common Stock purchasable upon the exercise of each Warrant shall be
increased to a number determined by multiplying the number of shares of Common
Stock so purchasable immediately prior to the record date for such distribution
by a fraction, the numerator of which shall be the Exercise Price in effect
immediately prior to the adjustment required by clause (A) of this sentence and
the denominator of which shall be the Exercise Price in effect immediately
after such adjustment. The adjustments required by this paragraph (d) shall be
made whenever any such distribution occurs retroactive to the record date for
the determination of stockholders entitled to receive such distribution.
(e) Current Market Price. For the purpose of any computation of current
market price under this Section 13 and Section 15, the current market price per
share of
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Common Stock at any date shall be (x) for purposes of Section 15, the closing
price on the business day immediately prior to the exercise of the applicable
Warrant pursuant to Section 8 and (y) in all other cases, the average of the
daily closing prices for the shorter of (i) the 20 consecutive trading days
ending on the last full trading day on the exchange or market specified in the
second succeeding sentence prior to the Time of Determination (as defined
below) and (ii) the period commencing on the date next succeeding the first
public announcement of the issuance, sale, distribution or granting in question
through such last full trading day prior to the Time of Determination. The term
"Time of Determination" as used herein shall be the time and date of the
earlier to occur of (A) the date as of which the current market price is to be
computed and (B) the last full trading day on such exchange or market before
the commencement of "ex-dividend" trading in the Common Stock relating to the
event giving rise to the adjustment required by paragraph (a), (b), (c) or (d).
The closing price for any day shall be the last reported sale price regular
way or, in case no such reported sale takes place on such day, the average of
the closing bid and asked prices regular way for such day, in each case (1) on
the principal national securities exchange on which the shares of Common Stock
are listed or to which such shares are admitted to trading or (2) if the Common
Stock is not listed or admitted to trading on a national securities exchange,
in the over-the-counter market as reported by Nasdaq National Market or any
comparable system or (3) if the Common Stock is not listed on Nasdaq National
Market or a comparable system, as furnished by two members of the NASD selected
from time to time in good faith by the Board of Directors of the Company for
that purpose. In the absence of all of the foregoing, or if for any other
reason the current market price per share cannot be determined pursuant to the
foregoing provisions of this paragraph (e), the current market price per share
shall be the fair market value thereof as determined in good faith by the Board
of Directors of the Company.
(f) Consideration Received. If any shares of Common Stock, Options or
Convertible Securities shall be issued, sold or distributed for a consideration
other than cash, the amount of the consideration other than cash received by
the Company in respect thereof shall be deemed to be the then fair market value
of such consideration (as determined in good faith by the Board of Directors of
the Company). If any Options shall be issued in connection with the issuance
and sale of other securities of the Company, together comprising one integral
transaction in which no specific consideration is allocated to such Options by
the parties thereto, such Options shall be deemed to have been issued without
consideration; provided, however, that if such Options have an exercise price
equal to or greater than the current market price of the Common Stock on the
date of issuance of such Options, then such Options shall be deemed to have
been issued for consideration equal to such exercise price.
(g) Deferral of Certain Adjustments. No adjustment to the Exercise Price
(including the related adjustment to the number of shares of Common Stock
purchasable upon the exercise of each Warrant) shall be required hereunder
unless such adjustment, together with other adjustments carried forward as
provided below, would result in an
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<PAGE> 21
increase or decrease of at least one percent of the Exercise Price; provided
that any adjustments which by reason of this paragraph (g) are not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. No adjustment need be made for a change in the par value of the
Common Stock. All calculations under this Section shall be made to the nearest
1/10,000 of one cent or to the nearest 1/1000 of a share, as the case may be.
(h) Changes in Options and Convertible Securities. If the exercise
price provided for in any Options referred to in paragraph (c) above, the
additional consideration, if any, payable upon the conversion or exchange of
any Convertible Securities referred to in paragraph (c) or (e) above, or the
rate at which any Convertible Securities referred to in paragraph (c) or (e)
above are convertible into or exchangeable for Common Stock shall change at any
time (other than under or by reason of provisions designed to protect against
dilution upon an event which results in a related adjustment pursuant to this
Section 13), the Exercise Price then in effect and the number of shares of
Common Stock purchasable upon the exercise of each Warrant shall forthwith be
readjusted (effective only with respect to any exercise of any Warrant after
such readjustment) to the Exercise Price and number of shares of Common Stock
so purchasable that would then be in effect had the adjustment made upon the
issuance, sale, distribution or granting of such Options or Convertible
Securities been made based upon such changed purchase price, additional
consideration or conversion rate, as the case may be, but only with respect to
such Options and Convertible Securities as then remain outstanding.
(i) Expiration of Options and Convertible Securities. If, at any time
after any adjustment to the number of shares of Common Stock purchasable upon
the exercise of each Warrant shall have been made pursuant to paragraph (c) or
(h) above or this paragraph (i), any Options or Convertible Securities shall
have expired unexercised, the number of such shares so purchasable shall, upon
such expiration, be readjusted and shall thereafter be such as they would have
been had they been originally adjusted (or had the original adjustment not been
required, as the case may be) as if (i) the only shares of Common Stock deemed
to have been issued in connection with such Options or Convertible Securities
were the shares of Common Stock, if any, actually issued or sold upon the
exercise of such Options or Convertible Securities and (ii) such shares of
Common Stock, if any, were issued or sold for the consideration actually
received by the Company upon such exercise plus the aggregate consideration, if
any, actually received by the Company for the issuance, sale, distribution or
granting of all such Options or Convertible Securities, whether or not
exercised; provided that no such readjustment shall have the effect of
decreasing the number of such shares so purchasable by an amount (calculated by
adjusting such decrease to account for all other adjustments made pursuant to
this Section 13 following the date of the original adjustment referred to
above) in excess of the amount of the adjustment initially made in respect of
the issuance, sale, distribution or granting of such Options or Convertible
Securities.
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<PAGE> 22
(j) Registration of Warrants. If on or before July 31, 1999 the Company
has not (a) consummated a Qualified IPO, (b) repurchased all outstanding Notes
or (c) consummated a merger pursuant to which the shares of Common Stock are
converted into securities traded on NASDAQ or a national securities exchange
and have a market value of at least $100 million, the Warrants will also
entitle each holder to purchase an additional 8.678048 shares of Common Stock,
aggregating to 1,084,756 additional shares of Common Stock which represent
approximately 4.0% of the Company's outstanding Common Stock on a fully diluted
basis (assuming exercise of outstanding options and warrants and conversion of
all outstanding Preferred Stock) as of the Issue Date.
(k) Other Adjustments. In the event that at any time, as a result of an
adjustment made pursuant to this Section 13, the Holders shall become entitled
to receive any securities of the Company other than shares of Common Stock,
thereafter the number of such other securities so receivable upon exercise of
the Warrants and the Exercise Price applicable to such exercise shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the shares of
Common Stock contained in this Section 13.
Section 14. Statement on Warrants. Irrespective of any adjustment in the
number or kind of shares issuable upon the exercise of the Warrants or the
Exercise Price, Warrants theretofore or thereafter issued may continue to
express the same number and kind of shares as are stated in the Warrants
initially issuable pursuant to this Agreement.
Section 15. Fractional Interest. The Company shall not be required to
issue fractional shares of Common Stock on the exercise of Warrants. If more
than one Warrant shall be presented for exercise in full at the same time by
the same Holder, the number of full shares of Common Stock which shall be
issuable upon such exercise shall be computed on the basis of the aggregate
number of shares of Common Stock acquirable on exercise of the Warrants so
presented. If any fraction of a share of Common Stock would, except for the
provisions of this Section, be issuable on the exercise of any Warrant (or
specified portion thereof), the Company shall direct the Transfer Agent to pay
an amount in cash calculated by it equal to (i) the then current market price
per share multiplied by such fraction computed to the nearest whole cent, less
(ii) an amount equal to the Exercise Price multiplied by such fraction computed
to the nearest whole cent. The Holders, by their acceptance of the Warrant
Certificates, expressly waive any and all rights to receive any fraction of a
share of Common Stock or a stock certificate representing a fraction of a share
of Common Stock.
Section 16. Notices to Warrant Holders and the Warrant Agent. Upon any
adjustment of the Exercise Price pursuant to Section 13, the Company shall
promptly thereafter (i) cause to be filed with the Warrant Agent a certificate
executed by the independent accountants of the Company setting forth the
Exercise Price after such adjustment and setting forth in reasonable detail the
method of calculation and the facts
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<PAGE> 23
upon which such calculations are based and setting forth the number of Warrant
Shares (or portion thereof) issuable after such adjustment in the Exercise
Price, upon exercise of a Warrant and payment of the adjusted Exercise Price,
which certificate shall be conclusive evidence of the correctness of the
matters set forth therein, and (ii) cause to be given to each of the registered
Holders of the Warrant Certificates at his address appearing on the Warrant
register written notice of such adjustments by first-class mail, postage
prepaid. The Warrant Agent shall be entitled to rely on the above-referenced
accountant's certificate and shall be under no duty or responsibility with
respect to any such certificate, except to exhibit the same from time to time
to any Holder desiring an inspection thereof during reasonable business hours.
The Warrant Agent shall not at any time be under any duty or responsibility to
any Holder to determine whether any facts exist that may require any adjustment
of the number of shares of Common Stock or other stock or property issuable on
exercise of the Warrants or the Exercise Price, or with respect to the nature
or extent of any such adjustment when made, or with respect to the method
employed in making such adjustment or the validity or value (or the kind or
amount) of any shares of Common Stock or other stock or property which may be
issuable on exercise of the Warrants. The Warrant Agent shall not be
responsible for any failure of the Company to make any cash payment or to
issue, transfer or deliver any shares of Common Stock or stock certificates or
other common stock or property upon the exercise of any Warrant.
In case:
(a) the Company shall authorize the issuance to all holders of shares of
Common Stock of rights, options or warrants to subscribe for or purchase shares
of Common Stock or of any other subscription rights or warrants; or
(b) the Company shall authorize the distribution to all holders of shares
of Common Stock of evidences of its indebtedness or assets (other than cash
dividends or cash distributions payable out of consolidated earnings or earned
surplus or dividends payable in shares of Common Stock or distributions
referred to in Section 13 hereof); or
(c) of any consolidation or merger to which the Company is a party for
which approval of any shareholders of the Company is required and following
which the shareholders of the Company before such consolidation or merger no
longer hold at least 50% of the outstanding capital stock of the Company
following the merger or consolidation, or of the conveyance or transfer of all
or substantially all of the properties and assets of the Company, or of any
reclassification or change of Common Stock issuable upon exercise of the
Warrants (other than a change in par value, or from par value to no par value,
or from no par value to par value, or as a result of a subdivision or
combination), or a tender offer or exchange offer for shares of Common Stock,
or other transaction that would result in a Change in Control; or
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<PAGE> 24
(d) of the voluntary or involuntary dissolution, liquidation or winding
up of the Company; or
(e) the Company proposes to take any other action that would require an
adjustment of the Exercise Price or the number of Warrant Shares pursuant to
Section 13;
then the Company shall cause to be filed with the Warrant Agent and shall cause
to be given to each of the registered Holders of the Warrant Certificates at
such Holder's address appearing on the Warrant register, at least 20 days (or
10 days in any case specified in clauses (a) or (b) above) prior to the
applicable record date hereinafter specified, or promptly in the case of events
for which there is no record date, by first class mail, postage prepaid, a
written notice stating (i) the date as of which the holders of record of shares
of Common Stock to be entitled to receive any such rights, options, warrants or
distribution are to be determined, or (ii) the initial expiration date set
forth in any tender offer or exchange offer for shares of Common Stock, or
(iii) the date on which any such consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up or Change of Control is expected to
become effective or consummated, and the date as of which it is expected that
holders of record of shares of Common Stock shall be entitled to exchange such
shares for securities or other property, if any, deliverable upon such
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up or Change of Control. The failure to give the notice
required by this Section 16 or any defect therein shall not affect the legality
or validity of any distribution, right, option, warrant, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up, or Change of
Control or the vote upon any action. Nothing contained in this Agreement or in
any of the Warrant Certificates shall be construed as conferring upon the
Holders thereof the right to vote or to consent or to receive notice as
shareholders in respect of the meetings of shareholders or the election of
Directors of the Company or any other matter, or any rights whatsoever as
shareholders of the Company.
Section 17. Merger, Consolidation or Change of Name of Warrant Agent. Any
corporation into which the Warrant Agent may be merged or with which it may be
consolidated, or any corporation resulting from any merger or consolidation to
which the Warrant Agent shall be a party, or any corporation succeeding to the
corporate trust business of the Warrant Agent, shall be the successor to the
Warrant Agent hereunder without the execution or filing of any paper or any
further act on the part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor warrant agent
under the provisions of Section 19. Any such successor Warrant Agent shall
promptly cause notice of its succession as Warrant Agent to be mailed (by first
class mail, postage prepaid) to each Holder at such Holder's last address as
shown on the register maintained by the Warrant Agent pursuant to this
Agreement. In case at the time such successor to the Warrant Agent shall
succeed to the agency created by this Agreement, and in case at that time any
of the Warrant Certificates shall have been countersigned but not delivered,
any such successor to the Warrant Agent may adopt the
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<PAGE> 25
countersignature of the original Warrant Agent; and in case at that time any of
the Warrant Certificates shall not have been countersigned, any successor to
the Warrant Agent may countersign such Warrant Certificates either in the name
of the predecessor Warrant Agent or in the name of the successor to the Warrant
Agent; and in all such cases such Warrant Certificates shall have the full
force and effect provided in the Warrant Certificates and in this
Agreement.
In case at any time the name of the Warrant Agent shall be changed and at
such time any of the Warrant Certificates shall have been countersigned but not
delivered, the Warrant Agent whose name has been changed may adopt the
countersignature under its prior name, and in case at that time any of the
Warrant Certificates shall not have been countersigned, the Warrant Agent may
countersign such Warrant Certificates either in its prior name or in its
changed name, and in all such cases such Warrant Certificates shall have the
full force and effect provided in the Warrant Certificates and in this
Agreement.
Section 18. Warrant Agent. The Warrant Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions,
by all of which the Company and the Holders of Warrants, by their acceptance
thereof, shall be bound:
(a) The statements contained herein and in the Warrant Certificates shall
be taken as statements of the Company and the Warrant Agent assumes no
responsibility for the correctness of any of the same except such as describe
the Warrant Agent or action taken or to be taken by it. The Warrant Agent
assumes no responsibility with respect to the distribution of the Warrant
Certificates except as herein otherwise provided.
(b) The Warrant Agent shall not be responsible for any failure of the
Company to comply with any of the covenants contained in this Agreement or in
the Warrant Certificates to be complied with by the Company.
(c) The Warrant Agent may consult at any time with counsel satisfactory
to it (who may be counsel for the Company) and the Warrant Agent shall incur no
liability or responsibility to the Company or to any Holder of any Warrant
Certificate in respect of any action taken, suffered or omitted by it hereunder
in good faith and in accordance with the opinion or the advice of such counsel.
(d) The Warrant Agent shall incur no liability or responsibility to the
Company or to any Holder of any Warrant Certificate for any action taken in
reliance on any Warrant Certificate, certificate of shares, notice, resolution,
waiver, consent, order, certificate, or other paper, document or instrument
believed by it to be genuine and to have been signed, sent or presented by the
proper party or parties.
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<PAGE> 26
(e) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the execution of
this Agreement, to reimburse the Warrant Agent for all expenses, taxes and
governmental charges and other charges of any kind and nature reasonably
incurred by the Warrant Agent in the execution of this Agreement and to
indemnify the Warrant Agent and save it harmless against any and all
liabilities, including judgments, reasonable costs and counsel fees, for
anything done or omitted by the Warrant Agent in the execution of this
Agreement except as a result of its negligence or bad faith.
(f) The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to involve
expense unless the Company or one or more Holders of Warrant Certificates shall
furnish the Warrant Agent with reasonable security and indemnity for any costs
and expenses which may be incurred, but this provision shall not affect the
power of the Warrant Agent to take such action as it may consider proper,
whether with or without any such security or indemnity. All rights of action
under this Agreement or under any of the Warrants may be enforced by the
Warrant Agent without the possession of any of the Warrant Certificates or the
production thereof at any trial or other proceeding relative thereto, and any
such action, suit or proceeding instituted by the Warrant Agent shall be
brought in its name as Warrant Agent and any recovery of judgment shall be for
the ratable benefit of the Holders of the Warrants, as their respective rights
or interests may appear.
(g) The Warrant Agent, and any stockholder, director, officer or employee
of it, may buy, sell or deal in any of the Warrants or other securities of the
Company or become pecuniarily interested in any transaction in which the
Company may be interested, or contract with or lend money to the Company or
otherwise act as fully and freely as though it were not Warrant Agent under
this Agreement. Nothing herein shall preclude the Warrant Agent from acting in
any other capacity for the Company or for any other legal entity.
(h) The Warrant Agent shall act hereunder solely as agent for the
Company, and its duties shall be determined solely by the express provisions
hereof. The Warrant Agent shall not be liable for anything which it may do or
refrain from doing in connection with this Agreement except for its own
negligence or bad faith.
(i) The Warrant Agent shall not at any time be under any duty or
responsibility to any Holder of any Warrant Certificate to make or cause to be
made any adjustment of the Exercise Price or number of the Warrant Shares or
other securities or property deliverable as provided in this Agreement, or to
determine whether any facts exist which may require any of such adjustments, or
with respect to the nature or extent of any such adjustments, when made, or
with respect to the method employed in making the same. The Warrant Agent shall
not be accountable with respect to the validity or value or the kind or amount
of any Warrant Shares or of any securities or property which may at
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<PAGE> 27
any time be issued or delivered upon the exercise of any Warrant or with
respect to whether any such Warrant Shares or other securities will when issued
be validly issued and fully paid and nonassessable, and makes no representation
with respect thereto.
(j) In no event shall the Warrant Agent be liable hereunder for special,
indirect or consequential loss or damage of any kind whatsoever (including but
not limited to lost profits), even if the Warrant Agent has been advised of the
likelihood of such loss or damage and regardless of the form of action. No
provision in this Agreement shall require the Warrant Agent to risk or expend
its own funds or otherwise incur any financial liability in the performance of
any of its duties hereunder.
Section 19. Resignation and Removal of Warrant Agent; Appointment of
Successor. No resignation or removal of the Warrant Agent and no appointment
of a successor warrant agent shall become effective until the acceptance of
appointment by the successor warrant agent as provided herein. The Warrant
Agent may resign its duties and be discharged from all further duties and
liability hereunder (except liability arising as a result of the Warrant
Agent's own negligence or willful misconduct) after giving written notice to
the Company. The Company may remove the Warrant Agent upon written notice, and
the Warrant Agent shall thereupon in like manner be discharged from all further
duties and liabilities hereunder, except as aforesaid. The Warrant Agent
shall, at the Company's expense, cause to be mailed (by first class mail,
postage prepaid) to each Holder of a Warrant at his last address as shown on
the register of the Company maintained by the Warrant Agent a copy of said
notice of resignation or notice of removal, as the case may be. Upon such
resignation or removal, the Company shall appoint in writing a new warrant
agent. If the Company shall fail to make such appointment within a period of
30 days after it has been notified in writing of such resignation by the
resigning Warrant Agent or after such removal, then the resigning or removed
Warrant Agent or the Holder of any Warrant may apply to any court of competent
jurisdiction for the appointment of a new warrant agent. Any new warrant
agent, whether appointed by the Company or by such a court, shall be a
corporation doing business under the laws of the United States or any state
thereof, in good standing and having a combined capital and surplus of not less
than $10,000,000. The combined capital and surplus of any such new warrant
agent shall be deemed to be the combined capital and surplus as set forth in
the most recent annual report of its condition published by such warrant agent
prior to its appointment, provided that such reports are published at least
annually pursuant to law or to the requirements of a federal or state
supervising or examining authority. After acceptance in writing of such
appointment by the new warrant agent, it shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named herein
as the Warrant Agent, without any further assurance, conveyance, act or deed;
but if for any reason it shall be necessary or expedient to execute and deliver
any further assurance, conveyance, act or deed, the same shall be done at the
expense of the Company and shall be legally and validly executed and delivered
by the resigning or removed Warrant Agent. Not later than the effective date of
any such
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<PAGE> 28
appointment, the Company shall give notice thereof to the resigning or removed
Warrant Agent. Failure to give any notice provided for in this Section,
however, or any defect therein, shall not affect the legality or validity of
the resignation of the Warrant Agent or the appointment of a new warrant agent,
as the case may be.
Section 20. Registration. The Company acknowledges that Holders shall
have the registration rights set forth in the Warrant Registration Rights
Agreement.
Section 21. Reports.
(a) So long as any of the Warrants remain outstanding, the Company shall
cause copies of all quarterly and annual financial reports and of the
information, documents, and other reports (or copies of such portions of any of
the foregoing as the Commission may by rules and regulations prescribe) which
the Company is required to file with the Commission pursuant to Section 13 or
15(d) of the Exchange Act ("SEC Reports") to be filed with the Warrant Agent
and mailed to the Holders of the Warrants at their addresses appearing in the
register of Warrant Holders maintained by the Warrant Agent, in each case,
within 15 days of filing with the Commission. If the Company is not subject to
the requirements of Section 13 or 15(d) of the Exchange Act, the Company shall
nevertheless continue to cause SEC Reports, comparable to those which it would
be required to file pursuant to Section 13 or 15(d) of the Exchange Act if it
were subject to the requirements of either such Section, to be so filed with
the Commission (but only if the Commission permits such filings) and with the
Warrant Agent and mailed to the Holders of the Warrants, in each case, within
the same time periods as would have applied (including under the preceding
sentence) had the Company been subject to the requirements of Section 13 or
15(d) of the Exchange Act.
(b) The Company shall provide the Warrant Agent with a sufficient number
of copies of all SEC Reports that the Warrant Agent may be required to deliver
to the Holders of the Warrants under this Section 21.
(c) The Warrant Agent shall not be responsible for reviewing any reports
filed with it by the Company pursuant to this Section 21.
Section 22. Rule 144A. The Company hereby agrees with each Holder, for
so long as any Registrable Securities remain outstanding, to make available,
upon request of any Holder of Registrable Securities, to any Holder or
beneficial owner of Registrable Securities in connection with any sale thereof
and any prospective purchaser of such Registrable Securities designated by such
Holder or beneficial owner, the information required by Rule 144A(d)(4) under
the Securities Act in order to permit resales of such Registrable Securities
pursuant to Rule 144A.
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Section 23. Notices to Company and Warrant Agent. Any notice or demand
authorized by this Agreement to be given or made by the Warrant Agent or by the
Holder of any Warrant Certificate to or on the Company shall be sufficiently
given or made when and if deposited in the mail, first class or registered,
postage prepaid, addressed (until another address is filed in writing by the
Company with the Warrant Agent), as follows:
TeleHub Communications Corporation
2033 North Main Street, Suite 340
Walnut Creek, California 94590
Telecopy: (510) 295-1143
Telephone: (510) 295-1140
Attention: Richard Harmon
In case the Company shall fail to maintain such office or agency or shall
fail to give such notice of the location or of any change in the location
thereof, presentations may be made and notices and demands may be served at the
principal office of the Warrant Agent.
Any notice pursuant to this Agreement to be given by the Company or by the
Holder(s) of any Warrant Certificate to the Warrant Agent shall be sufficiently
given when and if deposited in the mail, first-class or registered, postage
prepaid, addressed (until another address is filed in writing by the Warrant
Agent with the Company) to the Warrant Agent as follows:
State Street Bank and Trust Company
Corporate Trust Department
Two International Place, Fourth Floor
Boston, MA 02110
Telecopy: (617) 664-5371
Telephone: (617) 664-5635
Section 24. Supplements and Amendments. The Company and the Warrant
Agent may from time to time supplement or amend this Agreement without the
approval of any Holders of Warrant Certificates in order to cure any ambiguity
or to correct or supplement any provision contained herein which may be
defective or inconsistent with any other provision herein, or to make any other
provisions in regard to matters or questions arising hereunder which the
Company and the Warrant Agent may deem necessary or desirable and which shall
not in any way adversely affect the interests of the Holders of Warrant
Certificates. Any amendment or supplement to this Agreement that has a
material adverse effect on the interests of Holders shall require the written
consent of Holders representing a majority of the then outstanding Warrants
(excluding Warrants held by the Company or any of its Affiliates). The consent
of each Holder of a
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<PAGE> 30
Warrant affected shall be required for any amendment pursuant to which the
Exercise Price would be increased or the number of Warrant Shares purchasable
upon exercise of Warrants would be decreased (other than pursuant to
adjustments provided for in Section 13 hereof). The Warrant Agent shall be
entitled to receive and, subject to Section 18, shall be fully protected in
relying upon, an officers' certificate and opinion of counsel as conclusive
evidence that any such amendment or supplement is authorized or permitted
hereunder, that it does or does not, as the case may be, require the written
consent of Holders to be effective hereunder, that it is not inconsistent
herewith, and that it will be valid and binding upon the Company in accordance
with its terms.
Section 25. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 26. Termination. This Agreement (other than any party's
obligations with respect to Warrants previously exercised and with respect to
indemnification or any other payment then owed to the Warrant Agent under
Section 18) shall terminate at 5:00 p.m., New York City time on the Expiration
Date.
Section 27. Governing Law. THIS AGREEMENT AND EACH WARRANT CERTIFICATE
ISSUED HEREUNDER SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE
STATE OF NEW YORK AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS OF SAID STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAWS.
Section 28. Benefits of this Agreement.
(a) Nothing in this Agreement shall be construed to give to any person
other than the Company, the Warrant Agent and the Holders of the Warrant
Certificates any legal or equitable right, remedy or claim under this
Agreement; but this Agreement shall be for the sole and exclusive benefit of
the Company, the Warrant Agent and the Holders of the Warrant Certificates.
(b) Prior to the exercise of the Warrants, no Holder of a Warrant
Certificate, as such, shall be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to receive dividends or
subscription rights, the right to vote, to consent, to exercise any preemptive
right, to receive any notice of meetings of stockholders for the election of
directors of the Company or any other matter or to receive any notice of any
proceedings of the Company, except as may be specifically provided for herein.
The Holders of the Warrants are not entitled to share in the assets of the
Company in the event of the liquidation, dissolution or winding up of the
Company's affairs.
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<PAGE> 31
(c) All rights of action in respect of this Agreement are vested in the
Holders of the Warrants, and any Holder of any Warrant, without the consent of
the Warrant Agent or the Holder of any other Warrant, may, on such Holder's own
behalf and for such Holder's own benefit, enforce, and may institute and
maintain any suit, action or proceeding against the Company suitable to
enforce, or otherwise in respect of, such Holder's rights hereunder, including
the right to exercise, exchange or surrender for purchase such Holder's
Warrants in the manner provided in this Agreement.
Section 29. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
[Signature Page Follows]
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<PAGE> 32
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
TELEHUB COMMUNICATIONS CORPORATION
By: _______________________________
Name: Donald H. Sledge
Title: President and Chief Executive Officer
STATE STREET BANK AND TRUST COMPANY, as Warrant
Agent
By: _________________________________
Authorized Signatory
-31-
<PAGE> 33
SCHEDULE OF EXCHANGES OF DEFINITIVE WARRANTS(1)
The following exchanges of a part of this Global Warrant have been
made:
______________________
(1) This is to be included only if the Warrant is in global form.
-32-
<PAGE> 34
EXHIBIT A
EXHIBIT A
{FORM OF FACE OF WARRANT CERTIFICATE}
THE WARRANTS REPRESENTED BY THIS CERTIFICATE WERE INITIALLY ISSUED AS PART
OF AN ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF $1,000 AGGREGATE PRINCIPAL
AMOUNT AT MATURITY OF 13 7/8% SENIOR DISCOUNT NOTES DUE 2005 (THE "NOTES") OF
TELEHUB COMMUNICATIONS CORPORATION (THE "COMPANY") AND A WARRANT. THE WARRANTS
AND THE NOTES WILL NOT TRADE SEPARATELY UNTIL THE EARLIEST OF (I) OCTOBER 30,
1998, (II) A "CHANGE OF CONTROL" (AS DEFINED IN THE INDENTURE GOVERNING THE
NOTES), (III) THE OCCURRENCE OF AN EVENT OF DEFAULT (AS DEFINED IN THE
INDENTURE GOVERNING THE NOTES), (IV) THE DATE ON WHICH A REGISTRATION STATEMENT
WITH RESPECT TO THE NOTES OR AN EXCHANGE OFFER (AS DEFINED IN THE INDENTURE
GOVERNING THE NOTES) FOR THE NOTES IS DECLARED EFFECTIVE, OR (V) SUCH EARLIER
DATE AS DETERMINED BY BANCBOSTON SECURITIES INC. IN ITS SOLE DISCRETION (SUCH
DATE, THE "SEPARATION DATE").(1)
No. { } Certificate for ______ Warrants
CUSIP No. [ ]
WARRANTS TO PURCHASE CLASS A COMMON STOCK
OF TELEHUB COMMUNICATIONS CORPORATION
___________
(1) UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
WARRANT AGREEMENT REFERRED TO HEREIN.
-33-
<PAGE> 35
THIS CERTIFICATES THAT _______________________, or its registered assigns,
is the registered holder of the number of Warrants set forth above (the
"Warrants"). Each Warrant entitles the holder thereof (the "Holder"), at its
option and subject to the provisions contained herein and in the Warrant
Agreement referred to below, to purchase from TeleHub Communications
Corporation, a Nevada corporation (the "Company"), 16.662 shares of common
stock, par value $0.001 per share, of the Company (the "Common Stock") at the
per share exercise price of $0.01 (the "Exercise Price"). In addition, each
Warrant entitles the Holder to purchase an additional 8.678 shares of Common
Stock, at an exercise price of $0.01 per share, if on or before July 31, 1999
the Company has not (a) consummate a Qualified IPO, (b) repurchased all
outstanding Notes or (c) consummated a merger pursuant to which the shares of
Common Stock are converted into securities traded on NASDAQ or a national
securities exchange and have a market value of at least $100 million. This
Warrant Certificate shall terminate and become void as of the close of business
on July 31, 2005 (the "Expiration Date") or upon the exercise hereof as to all
the shares of Common Stock subject hereto. The number of shares issuable upon
exercise of the Warrants and the Exercise Price per share shall be subject to
adjustment from time to time as set forth in the Warrant Agreement.
This Warrant Certificate is issued under and in accordance with a Warrant
Agreement dated as of July 30 , 1998 (the "Warrant Agreement"), between the
Company and (the "Warrant Agent", which term includes any successor Warrant
Agent under the Warrant Agreement), and is subject to the terms and provisions
contained in the Warrant Agreement, to all of which terms and provisions the
Holder of this Warrant Certificate consents by acceptance hereof. The Warrant
Agreement is hereby incorporated herein by reference and made a part hereof.
Reference is hereby made to the Warrant Agreement for a full statement of the
respective rights, limitations of rights, duties and obligations of the
Company, the Warrant Agent and the Holders of the Warrants. Capitalized terms
used but not defined herein shall have the meanings ascribed thereto in the
Warrant Agreement. A copy of the Warrant Agreement may be obtained for
inspection by the Holder hereof upon written request to the Warrant Agent at
Two International Place, Boston, MA 02110, Attention of Corporate Trust
Administration.
As provided in the Warrant Agreement and subject to the terms and
conditions therein set forth, the Warrants shall be exercisable at any time on
or after the Separation Date. Subject to the terms of the Warrant Agreement,
the Warrants may be exercised in whole or in part by presentation of this
Warrant Certificate with the Election to Purchase attached hereto duly executed
and with the simultaneous payment of the Exercise Price in cash or as provided
in the Warrant Agreement (subject to adjustment) to the Warrant Agent for the
account of the Company at the office of the Warrant Agent. If payment of the
Exercise Price in cash is permitted, then such payment shall be made by
certified or official bank check payable to the order of the Company or by wire
transfer of funds to an account designated by the Company for such purpose.
-34-
<PAGE> 36
As provided in the Warrant Agreement, the number of shares of Common Stock
issuable upon the exercise of the Warrants is subject to adjustment upon the
happening of certain events.
The Company may require payment of a sum sufficient to pay all taxes,
assessments or other governmental charges in connection with the transfer or
exchange of the Warrant Certificates pursuant to Section 9 of the Warrant
Agreement, but not for any exchange or original issuance (not involving a
transfer) with respect to temporary Warrant Certificates, the exercise of the
Warrants or the issuance of the Warrant Shares.
Upon any partial exercise of the Warrants, there shall be countersigned
and issued to the Holder hereof a new Warrant Certificate representing those
Warrants which were not exercised. This Warrant Certificate may be exchanged
at the office of the Warrant Agent by presenting this Warrant Certificate
properly endorsed with a request to exchange this Warrant Certificate for other
Warrant Certificates evidencing an equal number of Warrants. No fractional
Warrant Shares will be issued upon the exercise of the Warrants, but the
Company shall pay an amount in cash equal to the current market price per
Warrant Share, multiplied by such fraction computed to the nearest whole cent.
All shares of Common Stock issuable by the Company upon the exercise of
the Warrants shall, upon such issue, be duly and validly issued and fully paid
and non-assessable.
The holder in whose name the Warrant Certificate is registered may be
deemed and treated by the Company and the Warrant Agent as the absolute owner
of the Warrant Certificate for all purposes whatsoever and neither the Company
nor the Warrant Agent shall be affected by notice to the contrary.
The Warrants do not entitle any holder hereof to any of the rights of a
stockholder of the Company.
This Warrant Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Warrant Agent.
TELEHUB COMMUNICATIONS CORPORATION
By: ______________________________
Name: Donald H. Sledge
Title: President & Chief Executive Officer
Attest: ________________________
Richard M. Harmon
-35-
<PAGE> 37
Chief Financial Officer, Treasurer
and Corporate Secretary
DATED: July 30, 1998
_____________________________
STATE STREET BANK AND TRUST
COMPANY, as Warrant Agent
By: _______________________________
Name: Chi Ma
Title: Assistant Vice President
Attest: ______________________
Renee Ragland
Assistant Secretary
-36-
<PAGE> 38
FORM OF ELECTION TO PURCHASE WARRANT SHARES
(to be executed only upon exercise of Warrants)
TELEHUB COMMUNICATIONS CORPORATION
The undersigned hereby irrevocably elects to exercise Warrants at an
exercise price per Warrant (subject to adjustment) of $ 0.01 to acquire
________ shares of Common Stock, par value $0.001 per share, of TeleHub
Communications Corporation on the terms and conditions specified within the
Warrant Certificate and the Warrant Agreement therein referred to, surrenders
this Warrant Certificate and all right, title and interest therein to TeleHub
Communications Corporation and directs that the shares of Common Stock
deliverable upon the exercise of such Warrants be registered or placed in the
name and at the address specified below and delivered thereto.
Date:
____________________________________________
(Signature of Owner)
____________________________________________
(Street Address)
____________________________________________
(City) (State) (Zip Code)
Signature Guaranteed by:
____________________________________________
{Signature must be guaranteed by an eligible
Guarantor Institution (banks, stock brokers,
savings and loan associations and credit
unions) with membership in an approved
guarantee medallion program pursuant to
Securities and Exchange Commission Rule
17Ad-5}
1. The signature must correspond with the name as written upon the face of
the within Warrant Certificate in every particular, without alteration or
enlargement or any change whatsoever, and must be guaranteed.
-37-
<PAGE> 39
Securities and/or check to be issued to:
Please insert social security or identifying number:
Name: _______________________________________________________________
Street Address:______________________________________________________
City, State and Zip Code:____________________________________________
Any unexercised Warrants represented by the Warrant Certificate to be issued to:
Please insert social security or identifying number:
Name: _______________________________________________________________
Street Address:______________________________________________________
City, State and Zip Code:____________________________________________
-38-
<PAGE> 40
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF
WARRANTS
Re: Warrants to Purchase Common Stock (the "Warrants") of TELEHUB
COMMUNICATIONS CORPORATION.
This Certificate relates to ______ Warrants held in(1) __________
book-entry or _______________ definitive form by _________________ (the
"Transferor").
The Transferor:
[__] has requested the Warrant Agent by written order to deliver in
exchange for its beneficial interest in the Global Warrants held by
the depositary a Warrant or Warrants in definitive, registered form
equal to its beneficial interest in such Global Warrant (or the
portion thereof indicated above); or
[__] has requested the Warrant Agent by written order to exchange or
register the transfer of a Warrant or Warrants.
In connection with such request and in respect of each such Warrant, the
Transferor does hereby certify that the Transferor is familiar with the Warrant
Agreement relating to the above captioned Warrants and that the transfer of
this Warrant does not require registration under the Securities Act of 1933, as
amended (the "Securities Act") because:
[__] Such Warrant is being acquired for the Transferor's own account
without transfer.
[__] Such Warrant is being transferred (i) to a qualified
institutional buyer (as defined in Rule 144A under the Securities
Act), in reliance on Rule 144A or (ii) pursuant to an exemption from
registration in accordance with Rule 904 under the Securities Act
(and, in the case of clause (ii), based on an opinion of counsel if
the Company or the Warrant Agent so requests).
[__] Such Warrant is being transferred (i) in accordance with Rule
144 under the Securities Act (and based on an opinion of counsel if
the Company or the Warrant Agent so requests) or (ii) pursuant to an
effective registration statement under the Securities Act.
_____________________
(1)Check applicable box
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<PAGE> 41
[__] Such Warrant is being transferred to an institutional accredited
investor within the meaning of Rule 501(a)(1), (2), (3) or (7) under
the Securities Act pursuant to a private placement exemption from
the registration requirements of the Securities Act (and based on an
opinion of counsel if the Company or the Warrant Agent so requests).
[__] Such Warrant is being transferred in reliance on and in compliance
with another exemption from the registration requirements of the
Securities Act (and based on an opinion of counsel if the Company or
the Warrant Agent so requests).
[INSERT NAME OF TRANSFEROR]
By: ______________________________
Name: ____________________________
Title: ___________________________
Date:
-40-
<PAGE> 42
EXHIBIT C
CERTIFICATE OF APPLICABLE TRANSFEREE
(Pursuant to Section 501(a)(1), (2), (3) and (7) of Securities Act of
1933, as amended)
Re: Warrants to Purchase Common Stock (the "Warrants") of TELEHUB
COMMUNICATIONS CORPORATION.
This Certificate relates to ______ Warrants held in __________ book-entry
or _______________ definitive form by _____________ (the "Transferor") to
_________________ (the "Transferee").
In connection with such request for the transfer of each such Warrant, the
Transferee does hereby certify that the Transferee is familiar with the Warrant
Agreement relating to the above captioned Warrants and that the transfer of
this Warrant does not require registration under the Securities Act of 1933, as
amended (the "Securities Act"), because:
(i) we are an "accredited investor" within the meaning of Rule 501(a)(1),
(2), (3) or (7) under the Securities Act, or an entity in which all of the
equity owners are accredited investors within the meaning of Rule 501(a)(1),
(2), (3) or (7) under the Securities Act (an "Institutional Accredited
Investor");
(ii) any purchase of Warrants by us will be for our own account or for the
account of one or more other Institutional Accredited Investors;
(iii) in the event that we purchase any Warrants, we will acquire Warrants
having a minimum purchase price of at least $100,000 for our own account and
for each separate account for which we are acting;
(iv) we have such knowledge and experience in financial and business
matters that we are capable of evaluating the merits and risks of purchasing
the Warrants;
(v) we are not acquiring Warrants with a view to any distribution thereof
in a transaction that would violate the Securities Act or the securities laws
of any State of the United States or any other applicable jurisdiction;
provided that the disposition of our property and the property of any accounts
for which we are acting as fiduciary shall remain at all times within our
control; and
-41-
<PAGE> 43
(vi) we have received a copy of the Offering Memorandum dated July 27,
1998 relating to the Warrants and acknowledge that we have had access to such
financial and other information, and have been afforded the opportunity to ask
such questions of representatives of the Company and receive answers thereto,
as we deem necessary in connection with our decision to purchase Warrants.
We understand that the Warrants are being offered in a transaction not
involving any public offering within the meaning of the Securities Act and that
the Warrants have not been registered under the Securities Act, and we agree,
on our own behalf and on behalf of each account for which we acquire any
Warrants, that such Warrants may be offered, resold, pledged or otherwise
transferred only (a) to a person whom we reasonably believe to be a qualified
institutional buyer (as defined in Rule 144A under the Securities Act) in a
transaction meeting the requirements of Rule 144A, in a transaction meeting the
requirements of Rule 144 under the Securities Act, outside the United States in
a transaction meeting the requirements of Rule 904 under the Securities Act, or
in accordance with another exemption from the registration requirements of the
Securities Act (and based upon an opinion of counsel if the Company so
requests), (b) to the Company or (c) pursuant to an effective registration
statement, and, in each case, in accordance with any applicable securities laws
of any State of the United States or any other applicable jurisdiction. We
understand that the registrar will not be required to accept for registration
of transfer any securities, except upon presentation of evidence satisfactory
to the Company that the foregoing restrictions on transfer have been complied
with. We further understand that the Warrants purchased by us will be in the
form of definitive physical certificates and that such certificates will bear a
legend reflecting the substance of this paragraph. We further agree to provide
to any person acquiring any of the Securities from us a notice advising such
person that resales of the Securities are restricted as stated herein.
We acknowledge that you, the Company and others will rely upon our
confirmations, acknowledgments and agreements set forth herein, and we agree to
notify you promptly in writing if any of our representations or warranties
herein ceases to be accurate and complete.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY PROVISIONS RELATING
TO CONFLICTS OF LAWS.
- ------------------------------
(Name of Purchaser)
By:
- ------------------------------
Name:
Title:
Address:
-42-
<PAGE> 1
EXHIBIT 10.3
WARRANT REGISTRATION RIGHTS AGREEMENT
Dated as of July 30, 1998
between
TELEHUB COMMUNICATIONS CORPORATION
and
BANCBOSTON SECURITIES INC.
THIS WARRANT REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made
and entered into as of July 30, 1998, between TELEHUB COMMUNICATIONS
CORPORATION, a Nevada corporation (the "Company"), and BANCBOSTON SECURITIES
INC. (the "Initial Purchaser"). This Agreement is made pursuant to the Purchase
Agreement dated July 27, 1998, between the Company and the Initial Purchaser
(the "Purchase Agreement"), relating to, among other things, the sale by the
Company to the Initial Purchaser of an aggregate of 125,000 units (the "Units"),
each consisting of $1,000 principal amount at maturity of 13 7/8% Senior
Discount Notes due 2005 (the "Notes")of the Company and 125,000 warrants (each,
a "Warrant"), each Warrant initially entitling the holder thereof to purchase an
aggregate of 16.661856 shares of common stock, par value $0.001 per share (the
"Common Stock"), of the Company. The Warrants have been issued pursuant to the
Warrant Agreement dated as of the date hereof between the Company and State
Street Bank and Trust Company as warrant agent (the "Warrant Agreement"). In
order to induce the Initial Purchaser to enter into the Purchase Agreement, the
Company has agreed to provide to the Initial Purchaser and the Holders (as
defined herein), among other things, registration rights for the Warrant Shares
(as defined herein) as set forth in this Agreement. The execution and delivery
of this Agreement is a condition to the obligations of the Initial Purchaser
under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as follows:
Section 1. Definitions.
As used in this agreement, the following defined terms shall have the
following meanings:
"Advice" has the meaning ascribed to such term in the last paragraph of
Section 4 hereof.
1
<PAGE> 2
"Business Day" shall mean a day that is not a Legal Holiday.
"Common Shelf Registration Statement" has the meaning ascribed to such
term in Section 2.1 hereof.
"Common Stock" has the meaning ascribed to such term in the preamble
hereof.
"Company" shall have the meaning ascribed to that term in the preamble
hereof and shall also include the Company's permitted successors and assigns.
"Demand Registration" has the meaning ascribed to such term in Section
2.2(a) hereof.
"DTC" has the meaning ascribed to such term in Section 4(i) hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Expiration Date" has the meaning ascribed to such term in the Warrant
Agreement.
"Holder" shall mean the Initial Purchaser, for so long as it owns any
Warrants or Warrant Shares, and each of its successors, assigns and direct and
indirect transferees who become registered owners of such Warrants or Warrant
Shares.
"Included Securities" has the meaning ascribed to such term in Section
2.2(a) hereof.
"Indemnified party" has the meaning ascribed to such term in Section
5(c) hereof.
"Indenture" means the Indenture, of even date herewith, between the
Company and State Street Bank and Trust Company, as Trustee, pursuant to which
the Notes are issued.
"Initial Purchaser" has the meaning ascribed to such term in the
preamble hereof.
"Inspectors" has the meaning ascribed to such term in Section 4(n)
hereof.
"Issue Date" means the date of this Agreement, which is also the date
of the issuance of the Warrants under the Warrant Agreement.
"Legal Holiday" shall mean a Saturday, a Sunday or a day on which
banking institutions in New York, New York are required by law, regulation or
executive order to remain closed.
2
<PAGE> 3
"Notes" has the meaning ascribed to such term in the preamble hereof.
"Person" shall mean an individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
"Piggy-Back Registration" has the meaning ascribed to such term in
Section 2.3 hereof.
"Prospectus" means the prospectus included in any Registration
Statement (including, without limitation, any prospectus subject to completion
and a prospectus that includes any information previously omitted from a
prospectus filed as part of an effective registration statement in reliance upon
Rule 430A promulgated under the Securities Act), as amended or supplemented by
any prospectus supplement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
"Public Offering" means an underwritten primary public offering of
common stock of the Company registered under the Securities Act (other than a
public offering registered on Form S-8 under the Securities Act).
"Purchase Agreement" has the meaning ascribed to such term in the
preamble hereof.
"Registrable Securities" means any of (i) the Warrant Shares and (ii)
any other securities issued or issuable with respect to any Warrant Shares by
way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization or
otherwise, unless, in each case, such Warrant Shares and securities, if any,
have been offered and sold to the Holder pursuant to an effective Registration
Statement under the Securities Act declared effective prior to the
exercisability of the Warrants or such Warrant Shares and securities, if any,
may be sold to the public pursuant to Rule 144 without any restriction on the
amount of securities which may be sold by such Holder or the satisfaction of any
condition. As to any particular Registrable Securities held by a Holder, such
securities shall cease to be Registrable Securities when (i) a Registration
Statement with respect to the exercise or offering of such securities by the
Holder thereof shall have been declared effective under the Securities Act and
such securities shall have been exercised and/or disposed of by such Holder
pursuant to such Registration Statement, (ii) such securities may at the time of
determination be sold to the public pursuant to Rule 144 without any restriction
on the amount of securities which may be sold by such Holder (or any similar
provision then in force, but not Rule 144A) promulgated under the Securities Act
without the lapse of any further time or the satisfaction of any condition,
(iii) such securities shall have been otherwise transferred by such Holder and
new certificates for such securities not bearing a legend restricting further
transfer shall have been delivered by
3
<PAGE> 4
the Company or its transfer agent and subsequent disposition of such securities
shall not require registration or qualification under the Securities Act or any
similar state law then in force or (iv) such securities shall have ceased to be
outstanding.
"Registration Expenses" shall mean all expenses incident to the
Company's performance of or compliance with this Agreement, including, without
limitation, all SEC, exchange or National Association of Securities Dealers,
Inc. registration and filing fees and expenses, fees and expenses of compliance
with securities or blue sky laws (including, without limitation, reasonable fees
and disbursements of counsel for the underwriters in connection with blue sky
qualifications of the Registrable Securities), printing expenses, messenger,
telephone and delivery expenses, fees and disbursements of counsel for the
Company and all independent certified public accountants, the fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities (but not including any underwriting discounts or commissions or
transfer taxes, if any, attributable to the sale of Registrable Securities by
Holders of such Registrable Securities) and other reasonable out-of-pocket
expenses of Holders (including the fees and expenses of one counsel for the
Holders to be selected by a majority of such Holders).
"Registration Statement" shall mean any appropriate registration
statement of the Company filed with the SEC pursuant to the Securities Act which
covers any of the Registrable Securities pursuant to the provisions of this
Agreement and all amendments and supplements to any such Registration Statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"Requisite Securities" shall mean a number of Registrable Securities
equal to not less than 25% of the Registrable Securities held in the aggregate
by all Holders; provided, however, that with respect to any action to be taken
at the request of the Holders of the Registrable Securities prior to such time
as the Warrants have expired pursuant to the terms thereof and of the Warrant
Agreement, each Warrant outstanding shall be deemed to represent that number of
Registrable Securities for which such Warrant would be then exercisable (without
giving effect to the cashless (net) exercise feature referred to in the Warrant
Agreement).
"Rule 144" shall mean Rule 144 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other than Rule
144A) or regulation hereafter adopted by the SEC providing for offers and sales
of securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
4
<PAGE> 5
"Rule 144A" shall mean Rule 144A promulgated under the Securities Act,
as such Rule may be amended from time to time, or any similar rule (other than
Rule 144) or regulation hereafter adopted by the SEC.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time.
"Selling Holder" shall mean a Holder who is selling Registrable
Securities in accordance with the provisions of Section 2 hereof.
"Shelf Registration Statement" has the meaning ascribed to such term in
Section 2.1 hereof.
"Warrants" has the meaning ascribed to such term in the preamble
hereof.
"Warrant Agent" means State Street Bank and Trust Company and any
successor Warrant Agent for the Warrants pursuant to the Warrant Agreement.
"Warrant Agreement" has the meaning ascribed to such term in the
preamble hereof.
"Warrant Shares" means the shares of Common Stock delivered or
deliverable upon exercise of the Warrants.
"Warrant Shelf Registration Statement" has the meaning ascribed to such
term in Section 2.1 hereof.
Section 2. Registration Rights.
Section 2.1. Shelf Registrations.
(a) General. If at any time the Company proposes to file pursuant to
Rule 415 (or any successor provision) of the Securities Act (i) a shelf
registration statement relating to the offer and sale of the Warrants Shares by
the Holders from time to time in accordance with the methods of distribution
elected by such holders and set forth in such registration statement (the
"Warrant Shelf Registration Statement") or (ii) a shelf registration statement
(separately from the Warrant Shelf Registration Statement or included as part
thereof) covering the issuance of Warrant Shares to the Holders upon exercise of
the Warrants by the Holders thereof (the "Common Shelf Registration Statement",
and together with the Warrant Shelf Registration Statement, the "Shelf
Registration Statements"), then the Company shall give
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written notice of such proposed filing to the Holders as soon as practicable
(but in no event fewer than 15 days before the anticipated filing date).
(b) Effectiveness of Shelf Registration Statements. If the Company
files and causes to become effective a Shelf Registration Statement, the Company
shall cause such Shelf Registration Statement to remain effective until (A) in
the case of the Common Shelf Registration Statement, the earliest of (i) such
time as all Warrants have been exercised and (ii) 30 days after the Expiration
Date, and (B) in the case of the Warrant Shelf Registration Statement, the
earliest of (i) such time as all the Warrants have been sold thereunder, (ii) 30
days after the Expiration Date, (iii) two years after its effective date and
(iv) the date that Warrants held by non-affiliates of the Company are tradeable
without restriction under Rule 144(k) under the Securities Act.
Section 2.2. Demand Registrations.
(a) General. If the Shelf Registration Statements are not filed and
declared effective or cease to be effective, then, at any time and from time to
time after the earlier of (i) 365 days after the Issue Date and (ii) 180 days
after a Public Offering, Holders owning, individually or in the aggregate, not
less than the Requisite Securities may make a written request, on no more than
two occasions (each, a "Demand Registration"), that the Company register the
resale of the Warrant Shares, under the Securities Act. The Company shall file
with the SEC and use its best efforts to cause to become effective under the
Securities Act a Registration Statement with respect to such Registrable
Securities within (i) 60 days of receipt of such written request for a Demand
Registration if the Company is then eligible to register an offering pursuant to
Form S-3 under the Securities Act; or (ii) 120 days of receipt of such written
request for a Demand Registration if the Company is not then eligible to
register an offering pursuant to Form S-3 under the Securities Act but is then
qualified as a reporting company under the Exchange Act; provided that the
Company may delay its obligations to file with the SEC such Registration
Statement for up to 90 days provided that if on the date a Demand Registration
is made the Company is a reporting company under the Exchange Act the Company
will not be able to delay a filing hereunder beyond the next required filing of
the Company's Form 10-K if such filing is required to be made at least 60 days
from the date of the Demand Registration is made. Any such request will specify
the number of Registrable Securities proposed to be sold and will also specify
the intended method of disposition thereof. The Company shall give written
notice of such registration request to all other Holders of Registrable
Securities within 15 business days after the receipt thereof. Within 10 days
after receipt by any Holder of Registrable Securities of such notice from the
Company, such Holder may request in writing that such Holder's Registrable
Securities be included in such Registration Statement and the Company shall
include in such Registration Statement the Registrable Securities of any such
Holder requested to be so included (the "Included Securities"). Each such
request by such other Holders shall specify
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<PAGE> 7
the number of Included Securities proposed to be sold and the intended method of
disposition thereof. Subject to Sections 2.2(b) and 2.2(e) hereof, the Company
shall be required to register Registrable Securities pursuant to this Section
2.2(a) on a maximum of two occasions.
Subject to Section 2.2(e) hereof, no other securities of the Company
except (i) Registrable Securities held by any Holder, (ii) equity securities to
be offered and sold for the account of the Company and (iii) any equity
securities of the Company held by any Person having "piggy-back" registration
rights pursuant to any contractual obligation of the Company shall be included
in a Demand Registration. The inclusion of any such securities for the account
of the Company or any other Person shall be on the same terms as that of the
Registrable Securities.
(b) Effective Registration. A Registration Statement will not be deemed
to have been effected as a Demand Registration unless it has been declared
effective by the SEC and the Company has complied in all material respects with
all of its obligations under this Agreement with respect thereto; provided,
however, that if, after such Registration Statement has become effective, the
offering of Registrable Securities pursuant to such Registration Statement is or
becomes the subject of any stop order, injunction or other order or requirement
of the SEC or any other governmental or administrative agency or court that
prevents, restrains or otherwise limits the sale of Registrable Securities
pursuant to such Registration Statement for any reason not attributable to any
Holder participating in such registration and such restraint is not lifted
within 60 days after being imposed, such Registration Statement will be deemed
not to have been effected. If (i) a registration requested pursuant to this
Section 2.2 is deemed not to have been effected or (ii) a Demand Registration
does not remain effective under the Securities Act until at least the earlier of
(A) an aggregate of six months after the effective date thereof or (B) the
consummation of the distribution by the Holders of all of the Registrable
Securities covered thereby, then such registration shall not count towards
determining if the Company has satisfied its obligation to effect the Demand
Registration pursuant to this Section 2.2. For purposes of calculating the six
month period referred to in the preceding sentence, any period of time during
which such Registration Statement was not in effect shall be excluded. The
Holders of Registrable Securities shall be permitted to withdraw all or any part
of the Registrable Securities from a Demand Registration at any time prior to
the effective date of such Demand Registration; provided, however, that should
the Holders of Registrable Securities remaining after such withdrawal own,
individually or in the aggregate, less than the Requisite Securities, the
Company shall have the right to terminate or withdraw any registration initiated
by it under Section 2.2 prior to the effectiveness of such registration.
(c) Restrictions on Sale by Holders. Each Holder of Registrable
Securities whose Registrable Securities are covered by a Registration Statement
filed pursuant to Section 2.2
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<PAGE> 8
and are to be sold by the Holder thereunder agrees, if and to the extent
reasonably requested by the managing underwriter or underwriters in an
underwritten offering of common stock or common equivalents the gross proceeds
of which equal at least $10.0 million, not to effect any public sale or
distribution of Registrable Securities of the Company of the same class as any
securities included in such Registration Statement, including a sale pursuant to
Rule 144 (except as part of such underwritten offering), during the 10-day
period prior to, and during the 180- day period beginning on, the closing date
of each underwritten offering made pursuant to such Registration Statement, to
the extent timely notified in writing by the Company or such managing
underwriter or underwriters.
The foregoing provisions of Section 2.2(c) shall not apply to any
Holder of Registrable Securities if such Holder is prevented by applicable
statute or regulation from entering into any such agreement; provided, however,
that any such Holder shall undertake, in its request to participate in any such
underwritten offering, not to effect any public sale or distribution of any
Registrable Securities commencing on the date of sale of such Registrable
Securities unless it has provided 45 days' prior written notice of such sale or
distribution to the underwriter or underwriters.
(d) Underwritten Registrations. If any of the Registrable Securities
covered by a Demand Registration are to be sold in an underwritten offering, the
investment banker or investment bankers and manager or managers that will manage
the offering will be selected by the Company and will be reasonably acceptable
to the Holders of not less than a majority of the Registrable Securities to be
sold thereunder. The Company shall obtain the consent of a majority of the
Holders of Registrable Securities in order for the third registration pursuant
to Section 2.2(a) to be an underwritten offering.
No Holder of Registrable Securities may participate in any underwritten
registration pursuant to a Registration Statement filed under this Agreement
unless such Holder (a) agrees to (i) sell such Holder's Registrable Securities
on the basis provided in and in compliance with customary underwriting
arrangements and (ii) comply with Rules 101, 102 and 104 of Regulation M
promulgated under the Exchange Act and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably and customarily required under the terms of such
underwriting arrangements.
(e) Priority in Demand Registration. In a registration pursuant to
Section 2.2 hereof involving an underwritten offering, if the managing
underwriter or underwriters of such underwritten offering have informed, in
writing, the Company and the Selling Holders who have requested such Demand
Registration or who have sought inclusion therein that in such underwriter's or
underwriters' opinion the total number of securities which the Selling Holders
and any other Person entitled to participate in such registration pursuant to
Section 2.2(a)
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<PAGE> 9
hereof intend to include in such offering is such as to adversely affect the
success of such offering, including the price at which such securities can be
sold, then the Company will be required to include in such registration only the
amount of securities which it is so advised should be included in such
registration. In such event, securities shall be registered in such registration
in the following order of priority: (i) first, the securities which have been
requested to be included in such registration by the Holders of Registrable
Securities and the securities of other Persons entitled to exercise "piggy-back"
registration rights pursuant to contractual commitments of the Company (pro rata
based on the amount of securities held by the Holders of Registrable Securities
and such Persons), and (ii) second, provided that no securities sought to be
included by the Holders or any other Person sought to be included therein have
been excluded from such registration, securities to be offered and sold for the
account of the Company.
If 25% or more of the Registrable Securities which the Holders have
requested to be included in a registration statement pursuant to Section 2.2
hereof have been excluded from such registration statement pursuant to the
provisions of the foregoing paragraph, then such registration shall not count
towards determining whether the Company has satisfied its obligation to effect a
Demand Registration pursuant to Section 2.2 hereof.
Section 2.3. Piggy-Back Registration.
(a) General. If at any time after the earlier of (i) 365 days after the
Issue Date and (ii) 90 days after a Public Offering, the Company proposes to
file a Registration Statement under the Securities Act with respect to an
offering by the Company for its own account or for the account of any of its
security holders of any class of its common equity securities (other than (i) a
Registration Statement on Form S-4 or S-8 (or any substitute form that may be
adopted by the SEC or other form of limited purpose), (ii) a Registration
Statement filed in connection with an exchange offer or offering of securities
solely to the Company's existing security holders, or (iii) a Registration
Statement filed pursuant to the exercise of "demand" registration rights of
existing security holders pursuant to a contractual commitment of the Company)
then the Company shall give written notice of such proposed filing to the
Holders of Registrable Securities as soon as practicable (but in no event fewer
than 15 days before the anticipated filing date or 10 days if the Company is
subject to filing reports under the Exchange Act and able to use Form S-3 under
the Securities Act), and such notice shall offer such Holders the opportunity to
register such number of shares of Registrable Securities as each such Holder may
request in writing not later than 5 days prior to the anticipated filing date of
the Registration Statement after receipt of such written notice from the Company
(which request shall specify the Registrable Securities intended to be disposed
of by such Selling Holder and the intended method of distribution thereof) (a
"Piggy-Back Registration"). The Company shall use its best efforts to keep such
Piggy-Back Registration continuously effective under the Securities Act until at
least the earlier of (A) 90 days after
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<PAGE> 10
the effective date thereof or (B) the consummation of the distribution by the
Holders of all of the Registrable Securities covered thereby. The Company shall
use its commercially reasonable efforts to cause the managing underwriter or
underwriters, if any, of such proposed offering to permit the Registrable
Securities requested to be included in a Piggy-Back Registration to be included
on the same terms and conditions as any similar securities of the Company or any
other security holder included therein, subject to the restrictions set forth in
Section 2.3(b), and to permit the sale or other disposition of such Registrable
Securities in accordance with the intended method of distribution thereof. Any
Selling Holder shall have the right to withdraw its request for inclusion of its
Registrable Securities in any Registration Statement pursuant to this Section
2.3 by giving timely written notice to the Company of its request to withdraw.
The Company may withdraw a Piggy-Back Registration at any time prior to the time
it becomes effective or the Company may elect to delay the registration;
provided, however, that the Company shall give prompt written notice thereof to
participating Selling Holders. The Company will pay all Registration Expenses in
connection with each registration of Registrable Securities requested pursuant
to this Section 2.3, and each Holder of Registrable Securities shall pay all
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of such Holder's Registrable Securities pursuant to a
Registration Statement effected pursuant to this Section 2.3.
No registration effected under this Section 2.3, and no failure to
effect a registration under this Section 2.3, shall relieve the Company of its
obligation to effect a registration pursuant to Section 2.2 hereof, and no
failure to effect a registration under this Section 2.3 and to complete the sale
of securities registered thereunder in connection therewith shall relieve the
Company of any other obligation under this Agreement.
(b) Priority in Piggy-Back Registration. In a registration pursuant to
Section 2.3 hereof involving an underwritten offering, if the managing
underwriter or underwriters of such underwritten offering have informed, in
writing, the Company and the Selling Holders requesting inclusion in such
offering that in such underwriter's or underwriters' opinion the
total number of securities which the Company, the Selling Holders and any other
Persons desiring to participate in such registration intend to include in such
offering is such as to adversely affect the success of such offering, including
the price at which such securities can be sold, then the Company will be
required to include in such registration only the amount of securities which it
is so advised should be included in such registration. In such event, securities
shall be registered in such offering in the following order of priority: (i)
first, the securities which the Company proposes to register, and (ii) second,
provided that no securities sought to be included by the Company have been
excluded from such registration, the securities which have been requested to be
included in such registration by the Holders of Registrable Securities and other
Persons entitled to exercise "piggy-back" registration rights pursuant to
contractual commitments of the Company (pro rata based on the amount
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<PAGE> 11
of securities held by the Holders of Registrable Securities requesting such
inclusion and such Persons).
If, as a result of the provisions of this Section 2.3(b), any Selling
Holder shall not be entitled to include all Registrable Securities in a Piggy-
Back Registration that such Selling Holder has requested to be included, such
Selling Holder may elect to withdraw his request to include Registrable
Securities in such registration.
Section 2.4. Limitations, Conditions and Qualifications to Obligations
Under Registration Covenants.
The obligations of the Company set forth in Section 2 hereof are
subject to each of the following limitations, conditions and qualifications:
(a) Subject to the next sentence of this paragraph, the Company shall
be entitled to postpone, for a reasonable period of time, the filing or
effectiveness of, or suspend the rights of any Holders to make sales pursuant
to, any Registration Statement otherwise required to be prepared, filed and made
and kept effective by it pursuant to Section 2 thereunder; provided, however,
that the duration of such postponement or suspension may not exceed the earlier
to occur of (A) 15 days after the cessation of the circumstances described in
the next sentence of this paragraph on which such postponement or suspension is
based or (B) 90 days after the date of the determination of the Board of
Directors referred to in the next sentence, and the duration of such
postponement or suspension shall be excluded from the calculation of the six
month period described in Section 2.2(b). Such postponement or suspension may be
effected only if the Board of Directors of the Company determines reasonably and
in good faith that the filing or effectiveness of, or sales pursuant to, such
Registration Statement would materially impede, delay or interfere with any
material financing, offer or sale of securities, acquisition, corporate
reorganization or other significant transaction involving the Company or any of
its Subsidiaries which material financing, offer or sale of securities,
acquisition, corporate reorganization or other significant transaction is under
active consideration at the time of such postponement or suspension; provided,
however, that the Company shall not be entitled to such postponement or
suspension more than twice in any twelve-month period. If the Company shall so
postpone the filing of a Registration Statement it shall, as promptly as
possible, deliver a certificate signed by the Chief Executive Officer or
President of the Company to the Selling Holders as to such determination, and
the Selling Holders shall (y) have the right, in the case of a postponement of
the filing or effectiveness of a Registration Statement, upon the affirmative
vote of the Holders of not less than a majority of the Registrable Securities to
be included in such Registration Statement, to withdraw the request for
registration by giving written notice to the Company within 10 days after
receipt of such notice or (z) in the case of a suspension of the right to make
sales, receive an extension of the registration period equal to the number of
days of the suspension.
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Any Demand Registration as to which the withdrawal election referred to in the
preceding sentence has been effected shall not be counted for purposes of the
two Demand Registrations the Company is required to effect pursuant to Section
2.2 hereof.
(b) The Company's obligations shall be subject to the obligations of
the Selling Holders, which the Selling Holders acknowledge, to furnish all
information and materials required of such Selling Holders and to take any and
all actions required of such Selling Holders as may be required under applicable
federal and state securities laws and regulations to permit the Company to
comply with all applicable requirements of the SEC and to obtain any
acceleration of the effective date of such Registration Statement; and
(c) The Company shall not be obligated to cause any special audit to be
undertaken in connection with any registration pursuant to this Agreement unless
such audit is required by the SEC or requested by the underwriters with respect
to such registration.
Section 2.5. Restrictions on Sale by the Company and Others.
Company covenants and agrees that (i) it shall not, and that it shall
not cause or permit any of its subsidiaries to, effect any public sale or
distribution of any securities of the same class as any of the Registrable
Securities or any securities convertible into or exchangeable or exercisable for
such securities (or any option or other right for such securities), other than
any Common Stock and/or options, warrants or other Common Stock purchase rights,
and the Common Stock issued pursuant to such option, warrants or other rights,
to employees, officers or directors of, or consultants or advisors to the
Company or any subsidiary pursuant to stock purchase or stock option plans or
other arrangements that are approved by the Board of Directors of the Company,
during the 10-day period prior to, and during the 180-day period beginning on,
the commencement of any underwritten offering of Registrable Securities pursuant
to a Demand Registration which has been requested pursuant to this Agreement,
prior to the Company or any of its subsidiaries publicly announcing its
intention to effect any such public sale or distribution; and (ii) the Company
will not, and the Company will not cause or permit any subsidiary of the Company
to, after the date hereof, enter into any agreement or contract that conflicts
with or limits or prohibits the full and timely exercise by the Holders of
Registrable Securities of the rights herein to request a Demand Registration or
to join in any Piggy-Back Registration subject to the other terms and provisions
hereof.
Section 2.6. Rule 144 and Rule 144A.
The Company covenants that it will file the reports required to be
filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder in a timely manner and, if at any time
the Company is not required to file such reports, it will, upon the request of
any Holder or beneficial owner of Registrable Securities,
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<PAGE> 13
make available such information necessary to permit sales pursuant to Rule 144A
under the Securities Act. The Company further covenants that it will take such
further action as any Holder of Registrable Securities may reasonably request,
all to the extent required from time to time to enable such Holder to sell
Registrable Securities without registration under the Securities Act within the
limitation of the exemptions provided by (a) Rule 144(k) and Rule 144A under the
Securities Act, as such Rules may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the SEC (it being expressly
understood that the foregoing shall not create any obligation on the part of the
Company to file periodic reports or other reports under the Exchange Act at any
time that it is not then required to file such reports pursuant to the Exchange
Act). Upon the request of any Holder of Registrable Securities, the Company will
in a timely manner deliver to such Holder a written statement as to whether it
has complied with such information requirements.
Section 3. "Market Stand-Off" Agreement.
(a) Each Holder hereby agrees that it shall not, to the extent
requested by a managing underwriter of common stock or common equivalents of the
Company, sell or otherwise transfer or dispose of any Registrable Securities of
the Company then owned by such Holder (other than to donees or partners of the
Holder who agree to be similarly bound) for up to 180 days following the date of
the final Prospectus in connection with each Registration Statement of the
Company filed under the Securities Act; provided, however, that such agreement
(i) shall not be applicable to Registrable Securities sold pursuant to such
registration, and (ii) shall only be applicable if the managing underwriters
request such agreement from each Holder.
(b) In order to enforce the foregoing covenant, the Company shall have
the right to impose stop transfer instructions with respect to the Registrable
Securities (and the Registrable Securities of every other person subject to the
foregoing restriction) until the end of such period. The provisions of this
Section 3 shall be binding upon any transferee of any Registrable Securities.
Section 4. Registration Procedures.
In connection with the obligations of the Company with respect to any
Registration Statement pursuant to Sections 2.1, 2.2, 2.3 and 2.5 hereof, the
Company shall, except as otherwise provided:
(a) Prepare and file with the SEC as soon as practicable each such
Registration Statement (but in any event on or prior to the date of filing
thereof required under this Agreement) and cause such Registration Statement to
become effective and remain effective as provided herein; provided, however,
that before filing any such Registration Statement or
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<PAGE> 14
any Prospectus (for registrations pursuant to Sections 2.1, 2.2 and 2.3 hereof)
or any amendments or supplements thereto (only for registrations pursuant to
Sections 2.1 and 2.2 hereof), the Company shall make available to the Warrant
Agent, the Holders of the Registrable Securities covered by such Registration
Statement, and the managing underwriter or underwriters, if any, copies of all
such documents proposed to be filed, which documents will be subject to the
review and comment of such Holders and underwriters in connection with such
sale, if any, for a period of at least five Business Days, and the Company will
not file any such Registration Statement or any amendment or supplement to any
such Registration Statement (including all such documents incorporated by
reference) to which the Holders of the Registrable Securities covered by such
Registration Statement or the underwriters in connection with such sale, if any,
shall reasonably object within five Business Days after the receipt thereof. A
participating Holder or underwriter, if any, shall be deemed to have reasonably
objected to such filing if such Registration Statement, amendment or supplement,
as applicable, as proposed to be filed, contains a material misstatement or
omission or fails to comply with the applicable requirements of the Act;
(b) Prepare and file with the SEC such amendments and post-effective
amendments to the Registration Statement as may be necessary to keep such
Registration Statement continuously effective for the time periods prescribed
hereby; cause the related Prospectus to be supplemented by any required
prospectus supplement, and as so supplemented to be filed pursuant to Rule 424
(or any similar provisions then in force) promulgated under the Securities Act;
and comply with the provisions of the Securities Act, the Exchange Act and the
rules and regulations of the SEC promulgated thereunder applicable to it with
respect to the disposition of all securities covered by such Registration
Statement as so amended or in such prospectus as so supplemented.
(c) Notify the Warrant Agent, the Holders of Registrable Securities,
their counsel and the managing underwriter or underwriters, if any, promptly
(but in any event within two (2) Business Days), and confirm such notice in
writing, (i) when a Prospectus or any prospectus supplement or post-effective
amendment has been filed, and, with respect to a Registration Statement or any
post-effective amendment, when the same has become effective (including in such
notice a written statement that any Holder may, upon request, obtain, without
charge, one conformed copy of such Registration Statement or post-effective
amendment including financial statements and schedules and exhibits), (ii) of
the issuance by the SEC of any stop order suspending the effectiveness of such
Registration Statement or of any order preventing or suspending the use of any
preliminary prospectus or the initiation or threatening of any proceedings for
that purpose, (iii) of the receipt by the Company of any notification with
respect to (A) the suspension of the qualification or exemption from
qualification of the Registration Statement or any of the Registrable Securities
covered thereby for offer or sale in any jurisdiction, or (B) the initiation of
any proceeding for such purpose, (iv) of the happening of any event, the
existence of any condition or information becoming known that
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<PAGE> 15
requires the making of any changes in such Registration Statement, Prospectus or
documents so that, in the case of such Registration Statement, it will conform
in all material respects with the requirements of the Securities Act and it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, not misleading, and that in the case of the Prospectus, it will conform
in all material respects with the requirements of the Securities Act and it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and (v) of the Company's reasonable determination that a
post-effective amendment to such Registration Statement would be appropriate.
(d) Use commercially reasonable efforts to prevent the issuance of any
order suspending the effectiveness of the Registration Statement or of any order
preventing or suspending the use of a Prospectus or suspending the qualification
(or exemption from qualification) of any of the Registrable Securities covered
thereby for sale in any jurisdiction, and, if any such order is issued, to
obtain the withdrawal of any such order at the earliest practicable moment.
(e) If requested by the managing underwriter or underwriters, if any,
or the Holders of a majority of the Registrable Securities being sold in
connection with an underwritten offering (only for registrations pursuant to
Sections 2.1 and 2.2 hereof), (i) promptly incorporate in a prospectus
supplement or post-effective amendment such information as the managing
underwriter or underwriters, if any, or such Holders reasonably request to be
included therein to comply with applicable law, (ii) make all required filings
of such prospectus supplement or such post-effective amendment as soon as
practicable after the Company has received notification of the matters to be
incorporated in such prospectus supplement or post effective amendment, and
(iii) supplement or make amendments to such Registration Statement.
(f) Furnish to each Holder of Registrable Securities who so requests
and to counsel for the Holders of Registrable Securities and each managing
underwriter, if any, without charge, upon request, one conformed copy of the
Registration Statement and each post effective amendment thereto, including
financial statements and schedules, and of all documents incorporated or deemed
to be incorporated therein by reference and all exhibits (including exhibits
incorporated by reference).
(g) Deliver to each Holder of Registrable Securities, their counsel and
each underwriter, if any, without charge, as many copies of each Prospectus
(including each form of prospectus) and each amendment or supplement thereto as
such Persons may reasonably request; and, subject to the last paragraph of this
Section 4, the Company hereby consents to
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<PAGE> 16
the use of such Prospectus and each amendment or supplement thereto by each of
the Holders of Registrable Securities and the underwriter or underwriters or
agents, if any, in connection with the offering and sale of the Registrable
Securities covered by such Prospectus and any amendment or supplement thereto.
(h) Prior to any offering of Registrable Securities, to register or
qualify, and cooperate with the Holders of Registrable Securities, the
underwriter or underwriters, if any, and their respective counsel in connection
with the registration or qualification (or exemption from such registration or
qualification) of, such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
the managing underwriter or underwriters reasonably request in writing, or, in
the event of a non-underwritten offering, as the Holders of a majority of the
Registrable Securities may request; provided, however, that where Registrable
Securities are offered other than through an underwritten offering, the Company
agrees to cause its counsel to perform Blue Sky investigations and file
registrations and qualifications required to be filed pursuant to this Section
4(h); keep each such registration or qualification (or exemption therefrom)
effective during the Effectiveness Period and do any and all other acts or
things necessary or advisable to enable the disposition in such jurisdictions of
the securities covered thereby; provided, however, that the Company will not be
required to (A) qualify generally to do business in any jurisdiction where it is
not then so qualified, (B) take any action that would subject it to general
service of process in any such jurisdiction where it is not then so subject or
(C) become subject to taxation in any jurisdiction where it is not then so
subject.
(i) Cooperate with the Holders of Registrable Securities and the
managing underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold, which certificates shall not bear any restrictive legends whatsoever
and shall be in a form eligible for deposit with The Depository Trust Company
("DTC"); and enable such Registrable Securities to be in such denominations and
registered in such names as the managing underwriter or underwriters, if any, or
Holders may reasonably request at least two business days prior to any sale of
Registrable Securities in a firm commitment underwritten public offering.
(j) Pay all Registration Expenses in connection with the registrations
requested pursuant to Sections 2.1, 2.2 and 2.3 hereof. Each Holder of
Registrable Securities shall pay all underwriting discounts and commissions and
transfer taxes, if any, relating to the sale or disposition of such Holder's
Registrable Securities pursuant to a Registration Statement requested pursuant
to Section 2.2.
(k) Upon the occurrence of any event contemplated by Section 4(c)(iv)
or 4(c)(v) above, as promptly as practicable prepare a supplement or
post-effective amendment to the Registration Statement or a supplement to the
related Prospectus or any document
16
<PAGE> 17
incorporated or deemed to be incorporated therein by reference, and, subject to
Section 4(a) hereof, file such with the SEC so that, as thereafter delivered to
the purchasers of Registrable Securities being sold thereunder, such Prospectus
will not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(l) Prior to the effective date of a Registration Statement, (i)
provide the registrar for the Registrable Securities with certificates for such
securities in a form eligible for deposit with DTC and (ii) provide a CUSIP
number for such securities.
(m) If the Company determines to conduct any offering provided for
herein by meaning of an underwriting, enter into an underwriting agreement in
form, scope and substance as is customary in underwritten offerings and take all
such other actions as are reasonably requested by the managing underwriter or
underwriters in order to expedite or facilitate the registration or disposition
of such Registrable Securities in any underwritten offering to be made of the
Registrable Securities in accordance with this Agreement, and in such
connection, (i) make such representations and warranties to the underwriter or
underwriters, with respect to the business of the Company and the subsidiaries
of the Company, and the Registration Statement, Prospectus and documents, if
any, incorporated or deemed to be incorporated by reference therein, in each
case, in form, substance and scope as are customarily made by issuers to
underwriters in underwritten offerings, and confirm the same if and when
requested; (ii) use reasonable efforts to obtain an opinion of counsel to the
Company, addressed to the underwriter or underwriters covering the matters
customarily covered in opinions requested in underwritten offerings and such
other matters as may be reasonably requested by underwriters; (iii) use
reasonable efforts to obtain "cold comfort" letters from the independent
certified public accountants of the Company (and, if applicable, the
subsidiaries of the Company) and, if necessary, any other independent certified
public accountants of any subsidiary of the Company or of any business acquired
by the Company for which financial statements and financial data are, or are
required to be, included in the Registration Statement, addressed to each of the
underwriters, such letters to be in customary form and covering matters of the
type customarily covered in "cold comfort" letters in connection with
underwritten offerings and such other matters as reasonably requested by the
managing underwriter or underwriters and as permitted by the Statement of
Auditing Standards No. 72; and (iv) if an underwriting agreement is entered
into, the same shall contain customary indemnification provisions and procedures
with respect to all parties to be indemnified pursuant to said Section. The
above shall be done at each closing under such underwriting agreement, or as and
to the extent required thereunder.
(n) Make available for inspection by a representative of the Holders of
Registrable Securities being sold, any underwriter participating in any such
disposition of Registrable
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<PAGE> 18
Securities, if any, and any attorney or accountant retained by such
representative of the Holders or underwriter (collectively, the "Inspectors"),
at the offices where normally kept, during reasonable business hours, at the
Inspector's expense, all financial and other records, pertinent corporate
documents and properties of the Company and the subsidiaries of the Company as
reasonably requested by the Inspector, and cause the officers, directors and
employees of the Company and the subsidiaries of the Company to supply all
information in each case reasonably requested by any such Inspector in
connection with such Registration Statement; provided, however, that all such
information shall be kept confidential by such Inspector and shall not be used
for any purpose other than as contemplated hereby, except to the extent that (i)
the disclosure of such information is necessary or advisable to avoid or correct
a misstatement or omission in the Registration Statement or in any Prospectus;
provided however, that prior notice is given to the Company, and the Company's
legal counsel and such Holder's legal counsel concur that disclosure is
required, (ii) the release of such information is ordered pursuant to a subpoena
or other order from a court of competent jurisdiction, (iii) disclosure of such
information is necessary or advisable in connection with any action, claim, suit
or proceeding, directly or indirectly, involving or potentially involving such
Inspector and arising out of, based upon, relating to or involving this
Agreement or any of the transactions contemplated hereby or arising thereunder;
provided, however, that prior notice shall be provided as soon as practicable to
the Company of the potential disclosure of any information by such Inspector
pursuant to clauses (ii) or (iii) of this sentence to permit the Company to
obtain a protective order (or waive the provisions of this paragraph (n)) and
that such Inspector shall take all actions as are reasonably necessary to
protect the confidentiality of such information (if practicable) to the extent
such action is otherwise not inconsistent with, an impairment of or in
derogation of the rights and interests of the Holder or any Inspector, or (iv)
such information has been made generally available to the public.
(o) Comply with all applicable rules and regulations of the SEC and
make generally available to its security holders earnings statements satisfying
the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder
(or any similar rule promulgated under the Securities Act) no later than
forty-five (45) days after the end of any 12-month period (or ninety (90) days
after the end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Registrable Securities are
sold to an underwriter or to underwriters in a firm commitment or best efforts
underwritten offering and (ii) if not sold to an underwriter or to underwriters
in such an offering, commencing on the first day of the first fiscal quarter of
the Company after the effective date of the relevant Registration Statement,
which statements shall cover said 12-month periods.
(p) Use its best efforts to cause all Registrable Securities relating
to such Registration Statement to be listed on each securities exchange, if any,
on which similar securities issued by the Company are then listed.
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<PAGE> 19
(q) Cooperate with the Selling Holders of Registrable Securities to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold and not bearing any restrictive legends and
registered in such names as the Selling Holders may reasonably request at least
two business days prior to the closing of any sale of Registrable Securities.
Each seller of Registrable Securities as to which any registration is
being effected agrees, as a condition to the registration obligations with
respect to such seller provided herein, to furnish to the Company such
information regarding such seller and the distribution of such Registrable
Securities as the Company may, from time to time, reasonably request in writing
to comply with the Securities Act and other applicable law. The Company may
exclude from such registration the Registrable Securities of any seller for so
long as such seller fails to furnish such information within a reasonable time
after receiving such request. If the identity of a seller of Registrable
Securities is to be disclosed in the Registration Statement, such seller shall
be permitted to include all information regarding such seller as it shall
reasonably request.
Each Holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any written notice from the Company
of the happening of any event of the kind described in Section 4(c)(ii),
4(c)(iii), 4(c)(iv), or 4(c)(v) hereof, such Holder will forthwith discontinue
disposition of such Registrable Securities covered by the Registration Statement
or Prospectus until such Holder's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 4(k) hereof, or until it is advised
in writing (the "Advice") by the Company that the use of the applicable
prospectus may be resumed, and has received copies of any amendments or
supplements thereto, and, if so directed by the Company, such Holder will, at
the Company's expense, deliver to the Company all copies, other than permanent
file copies, then in such Holder's actual possession of the Prospectus covering
such Registrable Securities current at the time of receipt of such notice;
provided, however, that nothing herein shall create any obligation on the part
of any Holder to undertake unreasonable efforts to retrieve or return any such
Prospectus not within the actual possession or control of such Holder. In the
event the Company shall give any such notice, the period of time for which a
Registration Statement is required thereunder to be effective shall be extended
by the number of days during such periods from and including the date of the
giving of such notice to and including the date when each seller of Registrable
Securities covered by such Registration Statement shall have received (x) the
copies of the supplemented or amended Prospectus contemplated by Section 4(k)
hereof or (y) the Advice.
Section 5. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each Holder and
each Person, if any, who controls such Holder within the meaning of either
Section 15 of the
19
<PAGE> 20
Securities Act or Section 20 of the Exchange Act, or is under common control
with, or is controlled by, such Holder, from and against all losses, claims,
damages and liabilities (including, without limitation, and subject to clause
(c) of this Section 5 below, the reasonable legal fees and other reasonable
out-of-pocket expenses actually incurred by any Holder or any such controlling
or affiliated Person in connection with any suit, action or proceeding or any
claim asserted), caused by, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement (or any amendment thereto) pursuant to which Registrable Securities
were registered under the Securities Act, or caused by any omission or alleged
omission to state in any such Registration Statement a material fact required to
be stated therein or necessary to make the statements therein not misleading, or
caused by any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus or Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state in any such
preliminary prospectus or Prospectus a material fact required to be stated in
any such preliminary prospectus or Prospectus or necessary to make the
statements in any such preliminary prospectus or Prospectus in light of the
circumstances under which they were made not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission made in reliance upon and in
conformity with information relating to any Holder furnished to the Company in
writing by such Holder expressly for use in any such Registration Statement or
Prospectus; provided, however, that the Company shall not be required to
indemnify any such Person if such untrue statement or omission or alleged untrue
statement or omission was contained or made in any preliminary prospectus and
corrected in the Prospectus, or any amendment or supplement thereto and the
Prospectus does not contain any other untrue statement or omission or alleged
untrue statement or omission of a material fact that was the subject matter of
the related proceeding and any such loss, liability, claim, damage or expense
suffered or incurred by such indemnified Person resulted from any action, claim
or suit by any Person who purchased Registrable Securities which are the subject
thereof from such indemnified Person and it is established in the related
proceeding that such indemnified Person failed to deliver or provide a copy of
the Prospectus (as amended or supplemented) to such Person with or prior to the
confirmation of the sale of such Registrable Securities sold to such Person if
required by applicable law, unless such failure to deliver or provide a copy of
the Prospectus (as amended or supplemented) was a result of noncompliance by the
Company with Section 4 hereof or as a result of the failure of the Company to
provide such Prospectus.
(b) Each Holder agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign any Registration
Statement, and each Person, if any, who controls the Company within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Company to such Holder, but
only with reference to information relating to such Holder
20
<PAGE> 21
furnished to the Company in writing by such Holder expressly for use in any
Registration Statement (or any amendment thereto) or any Prospectus (or any
amendment or supplement thereto). The liability of any Holder under this
paragraph shall in no event exceed the proceeds received by such Holder from
sales of Registrable Securities giving rise to such obligations.
(c) In case any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be instituted involving any
Person in respect of which indemnity may be sought pursuant to either paragraph
(a) or (b) above, such Person (the "indemnified party") shall promptly notify
the Person against which such indemnity may be sought (the "indemnifying party")
in writing and the indemnifying party, upon request of the indemnified party,
shall retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party and any others the indemnifying party may
reasonably designate in such proceeding and shall pay the reasonable fees and
expenses actually incurred of such counsel relating to such proceeding;
provided, however, that the failure to so notify the indemnifying party shall
not relieve it of any obligation or liability which it may have thereunder or
otherwise unless the indemnifying party has been materially prejudiced by such
failure. In any such proceeding, any indemnified party shall have the right to
retain its own counsel, but the fees and expenses of such counsel shall be at
the expense of such indemnified party unless (i) the indemnifying party and the
indemnified party shall have mutually agreed to the contrary, (ii) the
indemnifying party shall have failed to retain within a reasonable period of
time counsel reasonably satisfactory to such indemnified party or parties or
(iii) the named parties to any such proceeding (including any impleaded parties)
include both such indemnified party or parties and the indemnifying parties or
any affiliate of the indemnifying parties or such indemnified parties and
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between the indemnifying party or
parties and the indemnified party or parties. It is understood that the
indemnifying parties shall not, in connection with any one such proceeding or
separate but substantially similar or related proceedings in the same
jurisdiction, arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys
(together with appropriate local counsel) at any time for such indemnified party
or parties and that all such fees and expenses shall be reimbursed within
reasonable time of the request after the incurrence thereof. Any such separate
firm for the Holders and such control Persons of the Holders shall be designated
in writing by Holders who sold a majority in interest of Registrable Securities
sold by all such Holders and any such separate firm for the Company, its
directors, its officers and such control Persons of the Company shall be
designated in writing by the Company. The indemnifying party shall not be liable
for any settlement of any proceeding effected without its prior written consent
(which consent shall not be unreasonably withheld or delayed) but if settled
with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify and hold harmless the indemnified party
from and against any loss or liability by reason of such settlement or
21
<PAGE> 22
judgment. No indemnifying party shall, without the prior written consent of the
indemnified party (which consent shall not be unreasonably withheld), effect any
settlement or compliance of any pending or threatened proceeding in respect of
which any indemnified party is or could have been a party, or indemnity could
have been sought thereunder by such indemnified party, unless such settlement or
compliance involves only the payment of money damages that are actually paid by
the indemnifying party or includes an unconditional written release of such
indemnified party in form and substance reasonably satisfactory to such
indemnified party of such indemnified party from all liability or claims that
are the subject matter of such proceeding.
(d) To the extent the indemnification provided for in paragraph (a) or
(b) of this Section 5 is unavailable to, or insufficient to hold harmless, an
indemnified party in respect of any losses, claims, damages or liabilities, then
each indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder and in order to provide for just and equitable
contribution, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities in such
proportion as is appropriate to reflect (i) the relative benefits received by
the Company on the one hand and the Holders on the other hand from the offering
of such Registrable Securities or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, not only such relative benefits but
also the relative fault of the Company on the one hand and the Holders on the
other hand in connection with the statements or omissions or alleged statements
or omissions that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Holders on the other shall be deemed to be in the same proportion as the
total proceeds from the offering (net of discounts and commissions but before
deducting expenses) of the Warrants sold pursuant to the Purchase Agreement
received by the Company bears to the total proceeds received by such Holder from
the sale of Registrable Securities, as the case may be. The relative fault of
the Company on the one hand and the Holders on the other hand shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or by the Holders
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission, and any other
equitable considerations appropriate in the circumstances.
(e) The Company and each Holder agree that it would not be just or
equitable if contribution pursuant to this Section 5 were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in Section 5(d) above. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages
and liabilities referred to in Section 5(d) above shall be deemed to include,
subject to the limitations set forth above, any reasonable legal or other
expenses
22
<PAGE> 23
actually incurred by such indemnified party in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of this
Section 5, in no event shall a Holder be required to contribute any amount in
excess of the amount by which proceeds received by such Holder from sales of
Registrable Securities exceeds the amount of any damages that such Holder has
otherwise been required to pay or has paid by reason of such untrue or alleged
untrue statement or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Section 5 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 5 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 5 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Holder or any person who controls a
Holder, the Company, their respective directors or officers or any person
controlling the Company and (ii) any termination of this Agreement.
Section 6. Miscellaneous.
(a) No Inconsistent Agreements. The Company represents and warrants to
the Holders that it has not entered into nor will the Company on or after the
date of this Agreement enter into, or cause or permit any of its subsidiaries to
enter into, any agreement which is inconsistent with the rights granted to the
Holders of Registrable Securities in this Agreement or otherwise conflicts with
the provisions hereof. The rights granted to the Holders thereunder do not in
any way conflict with and are not inconsistent with the rights granted to the
holders of the Company's other issued and outstanding securities, if any, under
any such agreements.
(b) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given unless the Company consents and the
Company has obtained the prior written consent of Holders of not less than a
majority in number of the then outstanding Warrants and Registrable Securities
not resold to the public for the purpose of adding any provision to or changing
in any manner or eliminating any of the provisions of this Agreement or
modifying in any manner the rights of the Holders of the outstanding Warrants;
provided, however, that Section 5 hereof and this Section 6(b) may not be
amended, modified
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<PAGE> 24
or supplemented without the prior written consent of each Holder (including any
Person who was a Holder of Registrable Securities disposed of pursuant to any
Registration Statement) affected by such amendment, modification or supplement.
Notwithstanding the foregoing, a waiver or consent to departure from the
provisions hereof that relates exclusively to the rights of Holders of
Registrable Securities whose securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly affect, impair,
limit or compromise the rights of other Holders of Registrable Securities may be
given the Company and by the Holders of not less than a majority of the
Registrable Securities proposed to be sold by such Holders pursuant to such
Registration Statement.
(c) Notices. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and shall be mailed,
delivered, telecopied and confirmed in writing or sent by a nationally
recognized overnight courier service guaranteeing delivery on the next business
day to: (i) if sent to a Holder, at the most current address of Holder as set
forth in the register for the Warrants or the Warrant Shares; (ii) if sent to
the Initial Purchaser, to BancBoston Securities Inc., 100 Federal Street,
Boston, Massachusetts 02110, Attention: Investment Banking, telecopy number:
(617) 434-0382, with a copy to Paul, Hastings, Janofsky & Walker LLP, 399 Park
Avenue, New York, New York 10022, Attention: Thomas R. Pollock, telecopy number:
(212) 319-4090; and (iii) if sent to the Company, to TeleHub Communications
Corporation, 2033 North Main Street, Suite 340, Walnut Creek, California 94596,
Attention: Chief Financial Officer, telecopy number: (510) 295-1143, with a copy
to Haligman Lottner Rubin & Fishman, 633 Seventeenth Street, Suite 2700, Denver,
Colorado 80202-3635, Attention: Michael L. Glaser, telecopy number: (303)
292-1300.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is acknowledged, if telecopied; and on
the next Business Day, if timely delivered to an air courier guaranteeing
overnight delivery.
(d) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders. If any transferee of any Holder shall acquire
Warrants and/or Registrable Securities, in any manner, whether by operation of
law or otherwise, such Warrants and/or Registrable Securities shall be held
subject to all of the terms of this Agreement, and by taking and holding such
Warrants and/or Registrable Securities such Person shall be conclusively deemed
to have agreed to be bound by and to perform all of the terms and provisions of
this Agreement and such Person shall be entitled to receive the benefits hereof.
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<PAGE> 25
(e) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) GOVERNING LAW; JURISDICTION. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAWS.
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY: (A)
SUBMITS ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO
THIS WARRANT REGISTRATION RIGHTS AGREEMENT OR FOR RECOGNITION AND ENFORCEMENT OF
ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS
OF THE STATE OF NEW YORK AND THE COURTS OF THE UNITED STATES OF AMERICA FOR THE
SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS THEREOF, AND CONSENTS AND
AGREES TO SUCH ACTION OR PROCEEDING BEING BROUGHT IN SUCH COURTS; AND (B) WAIVES
ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION
OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN
ANY INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME.
(h) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(i) Entire Agreement. This Agreement, together with the Purchase
Agreement and the Warrant Agreement is intended by the parties as a final
expression of their agreement, and is intended to be a complete and exclusive
statement of the agreement and understanding of
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<PAGE> 26
the parties hereto in respect of the subject matter contained herein and
therein. This Agreement, the Purchase Agreement and the Warrant Agreement
supersede all prior agreements and understandings between the parties with
respect to such subject matter.
(j) Attorneys' Fees. As between the parties to this Agreement, in any
action or proceeding brought to enforce any provision of this Agreement, or
where any provision hereof is validly asserted as a defense, the successful
party shall be entitled to recover reasonable attorneys' fees in addition to its
costs and expenses and any other available remedy.
(k) Securities Held by the Company or Its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities or Warrants is required thereunder, Registrable Securities or
Warrants held by the Company or by any of its affiliates (as such term is
defined in Rule 405 under the Securities Act) shall not be counted (in either
the numerator or the denominator) in determining whether such consent or
approval was given by the Holders of such required percentage.
(l) Remedies. In the event of a breach by the Company of any of its
obligations under this Agreement, each Holder, in addition to being entitled to
exercise all rights provided herein, in the Purchase Agreement or granted by
law, including recovery of damages, will be entitled to specific performance of
its rights under this Agreement. The Company agrees that monetary damages would
not be adequate compensation for any loss incurred by reason of a breach by it
of any of the provisions of this Agreement.
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<PAGE> 27
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
TELEHUB COMMUNICATIONS CORPORATION
By:
---------------------------------------
Name: Donald H. Sledge
Title: President and Chief Executive
Officer
BANCBOSTON SECURITIES INC.
By:
---------------------------------------
Name: Reid Funston
Title: Director
27
<PAGE> 1
EXHIBIT 10.4
SALES AGREEMENT
THIS SALES AGREEMENT made this 31st day of October, 1997
BETWEEN:
NEWBRIDGE NETWORKS CORPORATION, a corporation incorporated under the laws of
Canada, with offices at 600 March Road, Kanata, Ontario, Canada K2K 2E6
("Newbridge")
and
TELEHUB NETWORK SERVICES CORP., with offices at 2033 North Main Street,
Suite 340, Walnut Creek, California, USA 94596 ("TeleHub")
1. SCOPE
1.1 For the purposes of this Agreement, "Products" means those products and
services to be delivered by Newbridge to TeleHub, including but not limited to
those described in the attached Exhibit A.
1.2 This Agreement also applies to all quotations, and any subsequent sales of
Products by Newbridge to TeleHub. Acceptance of TeleHub's order is made upon the
express understanding that it will be governed by the terms and conditions set
out herein, and that any additional or conflicting terms and conditions
accompanying TeleHub's order shall, absent express agreement to the contrary as
hereinafter provided, be void and of no force or effect. Any modifications to
these terms and conditions must be specifically agreed to in writing by an
authorized officer of each party. These terms and conditions shall be
applicable whether or not they are attached to or enclosed with the Products.
2. QUOTATION
Quoted prices will remain open for acceptance by the TeleHub for a period of
thirty (30) days from the date of quotation. Unless otherwise stated, prices
for the Products are firm but may be subject to adjustment for foreign
exchange, purchase or sales tax, customs tariff or other direct taxes, between
the date of quotation and the date of shipment.
3. ORDERS
TeleHub's orders are subject to final acceptance by Newbridge and Newbridge
reserves the right to accept or to reject any order from the TeleHub, in whole
or in part. TeleHub may not cancel any order. Newbridge may, without prejudice
to any other remedy which it may have at law or in equity, cancel or suspend
delivery of any uncompleted order in the event of non-payment or other material
breach of these terms and conditions by TeleHub, which event is not cured by
TeleHub within thirty (30) days of receipt of notice thereof from Newbridge.
Newbridge shall have no liability to TeleHub for any costs, losses, or damages
of any kind whatsoever arising as a result of any such suspension or
cancellation. Blanket orders will be accepted for annual quantity pricing,
provided that they are firm orders for a stated quantity, and delivery is
accepted by the TeleHub within one year from the date of blanket order entry.
4. TITLE AND DELIVERY
4.1 The Products shall be delivered F.C.A. (INCOTERMS: 1990) Newbridge's plant
or designated warehouse. Title and all liability for loss or damage shall pass
to TeleHub upon Newbridge's delivery of the Products to a common carrier for
shipment to TeleHub.
4.2 Absent express instructions from TeleHub, Newbridge shall, in its sole
discretion, determine best way shipment, routing and common carrier utilized.
Newbridge will use reasonable commercial efforts to ship orders within the time
quoted for shipment. Times quoted for shipment will date from acceptance by
Newbridge of TeleHub's order, and will be subject to the issuance of any
necessary import permits and licenses. In no event will Newbridge be liable
for any costs, losses or damages including, without limitation, reprocurement
costs arising out of or caused by delay in delivery or non-delivery of the
Products.
5. TAXES
All taxes (excluding taxes on the income of Newbridge or similar taxes), levies
or duties of any nature applicable to the sale, lease or license of the
Products shall be paid by TeleHub, or in lieu thereof, TeleHub shall provide
Newbridge with a tax exemption certificate acceptable to the taxing
authorities.
6. PAYMENTS
6.1 All orders are subject to credit approval prior to acceptance.
6.2 Newbridge will endeavor to arrange lease financing through Newbridge
Leasing (GE Capital) at mutually agreeable terms (the "Lease"). Each shipment
shall be considered a separate and independent transaction, and payment
therefore shall be made accordingly. In the event of any material default by
TeleHub, Newbridge may, without prejudice to any other rights that it may have
in law or in equity, decline to make further shipments. If, despite any
material default by TeleHub, Newbridge elects to continue to make shipments,
its action shall not constitute a waiver of any default by TeleHub or in any
way preclude Newbridge's right to exercise any other remedies available to it
in law or in equity.
<PAGE> 2
6.3 Interest shall accrue against any amount which remains unpaid by TeleHub
under this Agreement for more than thirty days from the date of invoice.
Interest shall be payable to Newbridge at the rate of 1.5% per month compounded
(19.6% per annum, actual rate), or the maximum allowed by law, whichever is
less, and shall be payable monthly in arrears.
7. WARRANTY
7.1 Hardware
7.1.1 Newbridge warrants that the Products which are hardware will, for a
period of twelve (12) months from December 11, 1997 (the "Warranty Period"):
(i) be free from defects in material, and (ii) comply with reasonable and
Newbridge's normal standards of workmanship. Newbridge further warrants that
its 36170 Mainstream ATM Backbone Switch will, for the Warranty Period,
comply in all material respects to: (i) the Newbridge brochure entitled
"36170 Mainstream ATMnet Backbone Switch", a copy of which is attached
hereto as Exhibit D.; and (B) the Newbridge document entitled
"MainStreetXpress 36170 Multiservices Switch, Release 2.2 and 2.3, General
Information Book", Newbridge part no. 91-2386-01-00-A. However, the Warranty
Period for the Products which will be identified on Exhibit B shall instead
be the shorter of: (i) twelve (12) months from the date of installation, or
(ii) twenty-four (24) months from the date of shipment. TeleHub shall
complete Schedule B no later than January 31, 1998. The Products listed in
Schedule B shall have a maximum value of ten million dollars ($10,000,000).
7.1.2 Newbridge shall incur no liability under the foregoing warranty
unless:
(a) the allegedly defective Products are returned prepaid to Newbridge
within fifteen (15) days of the date of discovery of the alleged
defect, in accordance with Newbridge's then current repair
procedures. Newbridge, at its sole option, may choose to instead to
repair the allegedly defective items at TeleHub's premises; and
(b) Newbridge's tests disclose that the alleged defect is due to defects
in material or workmanship.
7.1.3 The liability of Newbridge under this hardware warranty shall in any
event be limited, at Newbridge's option and expense, to either the
repair or replacement of the defective Product, or the reimbursement
of the purchase price paid by TeleHub to Newbridge for the defective
Products.
7.1.4 In no event will Newbridge be liable for damage to the Products
resulting from improper handling during or after shipment, misuse,
neglect, improper installation, operation or repair (other than by
authorized Newbridge personnel), alteration, accident, or for any
other cause not attributable to defects in materials or workmanship on
the part of Newbridge.
<PAGE> 3
7.2 Software
7.2.1 The warranties concerning the software supplied as a Product or as
part of a Product are set forth in Newbridge's Standard End User License
Agreement, as entered into between the parties on or about the same date as
the effective date of this Agreement (the "Software License Agreement").
7.2.2 Newbridge's sole obligation and Telehub's sole remedy for a breach of
this warranty shall be Newbridge's good faith efforts to rectify the non-
conformity or, if after reasonable efforts Newbridge is unable to rectify
the non-conformity, Newbridge shall accept return of the software (and any
hardware that cannot function without such software) and refund to TeleHub
the purchase price thereof. Newbridge shall have no obligation under this
warranty if the software is modified in a manner not expressly approved by
Newbridge, or if the software is used with hardware or software not supplied
or approved by Newbridge.
7.3 IN NO EVENT SHALL NEWBRIDGE'S LIABILITY TO TELEHUB OR TO ANY OTHER PARTY FOR
BREACH OF ANY OF THE FOREGOING WARRANTIES EXCEED THE PURCHASE PRICE PAID BY
CUSTOMER TO NEWBRIDGE FOR THE DEFECTIVE HARDWARE OR SOFTWARE PRODUCT, EXCEPT FOR
DIRECT DAMAGES SUFFERED BY TELEHUB DUE TO NEWBRIDGE'S GROSS NEGLIGENCE OR
WILFULL MISCONDUCT.
7.4 THE EXPRESS WARRANTIES SET OUT IN THIS SECTION 7 ARE IN LIEU OF ALL OTHER
WARRANTIES, REPRESENTATIONS OR CONDITIONS, EXPRESSED OR IMPLIED, INCLUDING
IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR
THOSE ARISING FROM STATUTE OR USAGE OF TRADE. TELEHUB SHALL NOT MAKE ANY
REPRESENTATIONS OR WARRANTIES OF ANY KIND WHATSOEVER RELATING TO THE PRODUCTS OR
TO NEWBRIDGE, WHICH EXCEED THOSE MADE BY NEWBRIDGE IN THIS CLAUSE 7. SUBJECT TO
THESE RESTRICTIONS, TELEHUB MAY REFER TO THE PRODUCTS OR TO NEWBRIDGE AS PART OF
ITS OWN PRODUCTS.
8. INTELLECTUAL PROPERTY RIGHTS
8.1 TeleHub recognizes and acknowledges the great value of the goodwill
associated with the name and trade-marks of Newbridge, and the identification of
the Products therewith. TeleHub shall not obscure, effect or permit the removal
or alteration of any trademarks, patent numbers, labels, serial numbers or the
like affixed to any Product, related materials or packaging.
8.2 All rights, title, and interest in and to the designs, models, patterns,
specifications, copyrights, patents, trade-secrets, trade-marks and other
intellectual and industrial property in the Products, documentation and related
materials shall remain vested in
<PAGE> 4
Newbridge or its third party suppliers. TeleHub may make a reasonable number of
copies of the Product documentation as required for its internal use only,
TeleHub shall not otherwise copy, make extracts from, translate or otherwise
modify any of the Products, documentation or related materials provided by
Newbridge.
8.3 TeleHub expressly acknowledges and agrees that any software delivered as a
Product or as part of a Product is not sold, but rather is licensed to TeleHub
subject to the terms and conditions of the Software License Agreement.
8.4 If any software is being acquired hereunder by or on behalf of any unit or
agency of the United States Government, the following provision shall apply: If
the software is supplied to the Department of Defense, it shall be classified
as "Commercial Computer Software" and the United States Government is acquiring
only "restricted rights" in the software as defined in DFARS 227-7202-l(a) and
227.7202-3(a), or equivalent. If the Software is supplied to any other unit or
agency of the United States Government, rights will be defined in Clause
52.227-19 or 52.227-14 of the FAR, or if acquired by NASA, Clause
18-52,227-86(d) of the NASA Supplement to the FAR, or equivalent. If the
software was acquired under a contract subject to the October 1988 Rights in
Technical Data and Computer Software regulations, use, duplication and
disclosure by the Government is subject to the restrictions set forth in DFARS
252-227.7013(c)(1)(ii) 1988, or equivalent. The owner of the software is
Newbridge Networks Corporation, P.O. Box 13600, 600 March Road, Kanata,
Ontario, Canada K2K 2E6.
9. INTELLECTUAL PROPERTY INDEMNITY
9.1 TeleHub shall indemnify and hold Newbridge harmless against any damage,
expense or loss resulting from any claims for actual or alleged infringement of
any Canadian or United States patent, copyright, trade-mark, trade secret or
other industrial or intellectual property rights resulting from unauthorized
use or modification of the Products by TeleHub, or from Newbridge's compliance
with TeleHub's designs, specifications or instructions, PROVIDED THAT:
(a) TeleHub is promptly notified of the claim in writing by Newbridge;
(b) TeleHub has sole control of the defense of any claim, and all negotiations
for its settlement or compromise; and
(c) Newbridge provides all such assistance as TeleHub may reasonably require.
9.2 The sale of Products by Newbridge does not convey any license by
implication, estoppel, or otherwise, under any patent, copyright, trade secret,
trade-mark or other intellectual or industrial property right.
9.3 Subject to Clause 9.1, Newbridge will defend or settle at its own expense,
any action brought against TeleHub to the extent that it is based on a claim
that the Products infringe any Canadian or United States patent, copyright,
trade-mark, trade secret or other industrial or intellectual property right.
Newbridge will pay all costs and damages
<PAGE> 5
Page 6
resulting from such claim which are finally awarded against TeleHub, or agreed
to in settlement by Newbridge, PROVIDED THAT:
(a) Newbridge is promptly notified of the claim in writing by TeleHub;
(b) Newbridge has sole control of the defense of any claim, and all negotiations
for its settlement or compromise,
(c) the claim does not result from any unauthorized use or modification of the
Products, or from the unauthorized use of the Products in conjunction with
any hardware or software not supplied or approved by Newbridge; and
(d) TeleHub provides all such assistance as Newbridge may reasonably require.
9.4 In the event that the Products or any part thereof become, or in Newbridge's
opinion are likely to become the subject of a claim of infringement of a patent,
copyright trade secret, trademark or other industrial or intellectual property
right, or the use of the Products or any part thereof is part as a result of any
such claim, TeleHub shall permit Newbridge, at its option and expense, to either
(i) procure for TeleHub the right to continue using the Products; (ii) to
replace the affected Products with non-infringing Products; (iii) modify the
affected Products so that they become non-infringing; or (iv) remove the
affected Products, and refund the purchase price thereof, less a reasonable
amount for depreciation. Any replacement or modified Products provided by
Newbridge under this paragraph shall comply with the terms and conditions of
this Agreement. However, such replacement or modified Products will be subject
to the original warranty periods remaining (if any) for the Product they replace
or modify.
9.5 THE FOREGOING STATES THE ENTIRE LIABILITY OF NEWBRIDGE WITH RESPECT TO ANY
ACTUAL OR ALLEGED INFRINGEMENT OF ANY PATENT, COPYRIGHT, TRADE SECRET,
TRADEMARK, MASK WORK OR OTHER INTELLECTURAL OR INDUSTRIAL PROPERTY RIGHT.
10. RETURNS, ACCEPTANCE
Products may not be returned following their acceptance under the terms of the
Lease, without prior written authorization from Newbridge, which authorization
may be withheld for any reason, or subject to any such reasonable terms and
conditions as Newbridge may require. However, Newbridge shall authorize the
exchange of a Product due to configuration issues, provided that such Product:
(i) has not been opened or used and is undamaged; and (ii) is exchanged for a
Product of equal or greater cost.
11. ASSIGNMENT
11.1 TeleHub shall not assign or transfer (by operation of law or otherwise) its
order or any interest therein without the prior written comment of Newbridge.
11.2 While a Product is subject to the terms and conditions of the Lease,
TeleHub shall not assign or transfer (by operation of law or otherwise) the
Product, or any rights accruing under these terms and conditions, without
obtaining the prior written consent of
<PAGE> 6
Page 7
Newbridge (which shall not be unreasonably withheld), and complying with the
terms and conditions of the Lease. However, with respect to any future
restructuring or organization of TeleHub's business, Newbridge will not
unreasonably withhold its consent, and shall make reasonable commercial
efforts to assist TeleHub in obtaining any consents that may be required by the
terms of the Lease.
11.3 For those Products that are no longer subject to the terms and conditions
of the Lease, TeleHub may transfer the Products, subject to the terms and
conditions of the Software License Agreement.
12. LIMITATION OF LIABILITY
12.1 EXCEPT AS EXPRESSLY PROVIDED HEREIN, IN NO EVENT WHATSOEVER, REGARDLESS OF
THE FORM OR CAUSE OF ACTION WHETHER IN CONTRACT OR TORT OR THE NUMBER OF CLAIMS,
AND WHETHER IN RESPECT OF A BREACH OR DEFAULT IN THE NATURE OF A BREACH OF
CONDITION OR FUNDAMENTAL TERM OR A FUNDAMENTAL BREACH OR AS A RESULT OF
NEGLIGENCE, SHALL NEWBRIDGE, ITS EMPLOYEES', DIRECTORS', OFFICERS' AND AGENTS'
TOTAL COLLECTIVE LIABILITY TO TELEHUB FOR ANY CLAIM EXCEED THE AMOUNT PAID FOR
THE SPECIFIC ITEM OR PRODUCT THAT IS THE SUBJECT MATTER OF OR THAT IS DIRECTLY
RELATED TO THE CLAIM.
12.2 NEWBRIDGE, ITS EMPLOYEES, AGENTS, OFFICERS AND DIRECTORS SHALL NOT BE
LIABLE IN ANY WAY WHATSOEVER, WHETHER AS A RESULT OF A CLAIM OR ACTION IN
CONTRACT OR TORT OR OTHERWISE FOR ANY INDIRECT, SPECIAL, CONSEQUENTIAL OR
PUNITIVE DAMAGES, OR FOR ANY LOST PROFITS OR LOST BUSINESS REVENUE, LOST
BUSINESS, FAILURE TO REALIZE EXPECTED SAVINGS, OR OTHER COMMERCIAL OR ECONOMIC
LOSS OF ANY KIND WHATSOEVER, OR FOR ANY DAMAGES, DIRECT OR INDIRECT, SPECIAL OR
CONSEQUENTIAL ARISING OUT OF ANY CLAIM AGAINST TELEHUB BY ANY PERSON WHETHER OR
NOT SUCH DAMAGES ARE FORESEEABLE AND WHETHER OR NOT NEWBRIDGE, ITS EMPLOYEES,
AGENTS, OFFICERS OR DIRECTORS HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
12.3 THE FOREGOING PROVISIONS LIMITING THE LIABILITY OF NEWBRIDGE'S EMPLOYEES,
AGENTS, OFFICERS, AND DIRECTORS SHALL BE DEEMED TO BE TRUST PROVISIONS FOR THE
BENEFIT OF SUCH EMPLOYEES, OFFICERS, DIRECTORS, AND AGENTS, AND SHALL BE
ENFORCEABLE BY SUCH AS TRUST BENEFICIARIES.
<PAGE> 7
13. HAZARDOUS USES PROHIBITION
TeleHub acknowledges that Newbridge products are intended for standard
commercial uses. Without the appropriate network design engineering, the
Products must not be use, sold, licensed, or otherwise distributed for use in
any hazardous environments requiring fail safe performance, such as in the
operation of nuclear facilities, aircraft navigation or communications systems,
air traffic control, direct life support machines, weapons systems, or any other
application in which the failure of the Products could lead directly to death,
personal injury, or severe physical or environmental damage. TeleHub hereby
agrees that the use, sale, license or other distribution of the Products for any
such application without the prior written consent of Newbridge shall be at
TeleHub's sole risk. TeleHub agrees to defend and hold Newbridge harmless from
any claims for loss, costs, damage, expense or other liabilities which may arise
out of or in connection with the use, sale, license or other distribution of the
Products for such applications.
14. EXPORT RESTRICTIONS
Newbridge and TeleHub shall comply with all export regulations pertaining to the
Products in effect from time to time. Without limiting the generality of the
foregoing, TeleHub expressly warrants that it will not directly or indirectly
export, re-export, or transship the Products or any part thereof in violation of
any export laws, rules or regulations of Canada, the United States or the United
Kingdom.
15. INTERPRETATION
This Agreement and the Software License constitute the entire agreement between
the parties with respect to the subject matter hereof. Any modification of these
terms and conditions shall be in writing, and shall be signed by each party's
authorized representative. This Agreement shall be governed by the domestic laws
of the Province of Ontario, Canada. The parties expressly exclude the provisions
of the United Nations Convention on Contracts for the International Sale of
Goods (the Vienna Convention, 1980), from the terms of this Agreement.
16. RESOLUTION OF TECHNICAL PROBLEMS
(a) Subject to section 16(b), Newbridge agrees to promptly resolve all the
technical problems with the Products identified in Exhibit "C", attached hereto,
which are customer service-affecting. The parties will continue to work together
to determine suitable resolutions for all other technical problems with the
Products identified in Exhibit C.
<PAGE> 8
(b) TeleHub agrees to provide reasonable assistance and cooperation to
Newbridge as Newbridge resolves the technical problems referenced in section
16(a).
IN WITNESS WHEREOF the parties hereto have duly executed this Agreement.
NEWBRIDGE NETWORKS TELEHUB NETWORK
CORPORATION SERVICES CORP.
D. McCarthy
---------------------------- ---------------------------
(Print) (Print)
/s/ D. McCarthy /s/ Michael McLaughlin
---------------------------- ---------------------------
(Signature) (Signature)
---------------------------- ---------------------------
(Title) (Title)
<PAGE> 9
(C) Start of Service Wiltel's obligation to provide and Customer's
obligation to accept and pay for non-usage sensitive charges for Services
shall be binding to the extent provided for in this Agreement upon the
submission of an acceptable Service Request to Wiltel by Customer.
Customer's obligation to pay for usage sensitive charges for Switched
Services shall commence with respect to any Service as of the earlier of (i)
the "Requested Service Date" set forth in each Service Request, or (ii) the
date the Service in question is made available to Customer and used ("START
OF SERVICE"). Start of Service for particular Services shall be further
described in the Service Schedule relevant to the Switched Services in
question.
(D) Service Schedules Services to be provided under this Agreement shall be
described in the Wiltel Service Schedule which is subscribed to by an
authorized representative of WilTel and Customer (THE "SERVICE SCHEDULE").
The Service Schedule shall become a part of this Agreement to the extent
that it describes the particular Services therefor, specific terms and other
information necessary or appropriate for Wiltel to provide such Service to
Customer.
(E) Service Requests Customer's requests to initiate or cancel Services
shall be described in an appropriate WilTel Service Request ("SERVICE
REQUESTS"). Service Requests may consist of machine readable tapes,
facsimiles or other means approved by Wiltel. Further, Service Requests
shall specify all reasonable information, as determined by Wiltel, necessary
or appropriate for Wiltel to provide the Service(s) in question, which shall
include without limitation, the type, quantity and end point(s) (when
necessary) of circuits comprising a Service Interconnection as described in
the applicable Service Schedules, or automatic number identification ("ANI")
information relevant to the Services(s), the Requested Service Date, and
charges, if any, relevant to the Services described in the Service Request.
After Wiltel's receipt and verification of a valid Service Request for
SWITCHED Service (as defined in the Service Schedule) requiring a change in
the primary interexchange carrier ("PIC"), Wiltel agrees to (i) submit the
ANI (s) relevant to such Service Requests to the following local exchange
carriers (LECs") (with which WilTel currently has electronic interface
capabilities) within ten (10) days: Ameritech, Bell Atlantic,
BellSouth, Nynex, Pacific Bell, Southwestern Bell, US West, GTE and United,
and (ii) submit the ANI(s) relevant to such Service Requests to those LECs
with which WilTel does not have electronic interface capabilities within a
reasonable time.
<PAGE> 10
2. CANCELLATION.
(A) Cancellation Charge At any time after the Effective Date, Customer may
cancel this Agreement if Customer provides written notification thereof to
WilTel not less than thirty (30) days prior to the effective date of
cancellation. In such case (or in the event WilTel terminates this Agreement
as provided in Section 8), Customer shall pay to WilTel all charges for
Services provided through the effective date of such cancellation plus a
cancellation charge (THE "CANCELLATION CHARGE") equal to one hundred percent
(100%) of Customer's commitment(s), if any, (as described in the PET) that
would have become due for the unexpired portion of the Service Term.
(B) Liquidated Damages It is agreed that WilTel's damages in the event
Customer cancels this Agreement shall be difficult or impossible to
ascertain. The provision for a cancellation charge in Subsection 2(A) above
is intended, therefore, to establish liquidated damages in the event of a
cancellation and is not intended as a penalty.
(C) Cancellation Without Charge Notwithstanding anything to the contrary
contained in subsection 2(A) above, Customer may cancel this Agreement
without incurring any cancellation charge if (i) WilTel fails to provide a
network as warranted in Section 9 below; (ii) WilTel fails to deliver call
detail records promptly based on the frequency selected by Customer (i.e.,
monthly, weekly or daily); or (iii) WilTel fails to submit ANI(s) relevant to
such Service Requests to the LECs within the time period described in
Subsection 1(E) above. Provided, however, Customer must give WilTel written
notice of any such default and an opportunity to cure such default within
five (5) days of the notice. In the event WilTel fails to cure any such
default within the five-day period on more than three (3) occasions within
any six (6) month period, Customer may cancel this Agreement without
incurring any cancellation charge.
3. CUSTOMER'S END USERS.
(A) End Users Customer will obtain and upon WilTel's request provide WilTel
(within two (2) business days of the date of the request) a written Letter of
Agency ("LOA") acceptable to WilTel [or with any other means approved by the
Federal Communications Commission ("FCC")], for each ANI indicating the
consent of the end users of Customer ("END USERS") to be served by Customer
and transferred (by way of change of such End User's designated PIC) to the
WilTel network prior to order processing. Each LOA will provide, among other
things, that the End Users have consented to the transfer being performed by
Customer or Customer's designee. When applicable, Customer will be
responsible for notifying End
<PAGE> 11
Users, in writing (or by any other means approved by the FCC) that (i) a
transfer charge will be reflected on their LEC bill for effecting a change
in their primary interexchange carrier ("PIC"), (ii) the entity name under
which their interstate, intrastate and/or operator services will be billed
(if different from Customer), and (iii) the "primary" telephone number(s) to
be used for maintenance and questions concerning their long distance service
and/or billing. Customer agrees to send WilTel a copy of the documentation
Customer uses to satisfy the above requirements promptly upon request of
WilTel. WilTel may change the foregoing requirements for Customer's
confirming orders and/or for notifying End Users regarding the transfer
charge at any time in order to conform with applicable FCC and state
regulations. Provided, however, Customer will be solely responsible for
ensuring that the transfer of End Users to the WilTel network conforms with
applicable FCC and state regulations, including without limitation, the
regulations established by the FCC with respect to verification of orders
for long distance service generated by telemarketing as promulgated in 47
C.F.R., Part 64, Subpart K, Section 64.1100 or any successor regulation(s).
(B) TRANSFER CHARGES/DISPUTED TRANSFERS Customer agrees that it is
responsible for (i) all charges incurred by WilTel to change the PIC of End
users to the WilTel network, (ii) all charges incurred by WilTel to change
End Users back to their previous PIC arising from disputed transfers to the
WilTel network plus an administrative charge equal to twenty percent (20%)
of such charges, and (iii) any other damages suffered by or awards against
WilTel resulting from disputed transfers.
(C) Excluded ANIs WilTel has the right to reject any ANI supplied by
Customer for any of the following reasons: (i) WilTel is not authorized to
provide or does not provide long distance services in the particular
jurisdiction in which the ANI is located, (ii) a particular ANI submitted by
Customer is not in proper form, (iii) Customer is not certified to provide
long distance services in the jurisdiction in which the ANI is located, (iv)
Customer is in default of this Agreement, (v) Customer fails to cooperate
with WilTel in implementing reasonable verification processes determined by
WilTel to be necessary or appropriate in the conduct of business, or (vi)
any other circumstance reasonably determined by WilTel which could adversely
affect WilTel's performance under this Agreement or WilTel's general ability
to transfer its other customers or other end users to the WilTel network,
including without limitation, WilTel's ability to electronically effect PIC
changes with the LECs. In the event WilTel rejects an ANI, WilTel will
notify Customer as soon as possible of its decision specifically describing
the rejected ANI and the reason(s) for rejecting that
<PAGE> 12
ANI, and will not incur any further liability under this Agreement with
regard to that ANI. Further, any ANI requested by Customer for Switched
Services may be deactivated by WilTel if no Switched Services billings
relevant thereto are generated in any three (3) consecutive calendar
month/billing periods. WilTel will be under no obligation to accept ANIs
within the three (3) full calendar month period preceding the scheduled
expiration of the Service Term.
(D) Records Customer will maintain documents and records ("RECORDS")
supporting Customer's re-sale of Switched Services, including, but not
limited to, appropriate and valid LOAs from End Users for a period of not
less than (twelve) 12 months or such other longer period as may be required
by applicable law, rule or regulation. Customer shall indemnify WilTel for
any costs, charges or expenses incurred by WilTel arising from disputed PIC
selections involving Switched Services to be provided to Customer for which
Customer cannot produce an appropriate LOA relevant to the ANI and PIC
charge in question, or when WilTel is not reasonably satisfied that the
validity of a disputed LOA has been resolved.
(E) Customer Service Customer will be solely responsible for billing the
End Users and providing the End Users with customer service. Customer agrees
to immediately notify WilTel in the event an End User notifies Customer of
problems associated with the Services, including without limitation, excess
noise, echo, or loss of Service.
4. CUSTOMER'S RESPONSIBILITIES.
(A) Expedite Charges In the event Customer requests expedited Services
and/or changes to Service Orders and WilTel agrees to such request, WilTel
will pass through the charges assessed by any supplying parties (e.g., local
access providers) for such expedited charges and/or changes to Service
Orders involved at the same rate to Customer. WilTel may further condition
its performance of such request upon Customer's payment of such additional
charges to WilTel.
(B) Fraudulent Calls Customer shall indemnify and hold WilTel harmless
from all costs, expenses, claims or actions arising from fraudulent calls of
any nature which may comprise a portion of the Services to the extent that
the party claiming the call(s) in question to be fraudulent is (or had been
at the time of the call) an End User of the Services through Customer or an
end user of the Services through Customer's distribution channels. Customer
shall not be excused from paying WilTel for Services provided to Customer or
any portion thereof on the basis that
<PAGE> 13
fraudulent calls comprised a corresponding portion of the Services. In the
event WilTel discovers fraudulent calls being made (or reasonably believes
fraudulent calls are being made), nothing contained herein shall prohibit
WilTel from taking immediate action (without notice to Customer) that is
reasonably necessary to prevent such fraudulent calls from taking place,
including without limitation, denying Services to particular ANIs or
terminating Services to or from specific locations.
5. CHARGES AND PAYMENT TERMS.
(A) Payment WilTel billings for Services hereunder are made on a monthly
basis (or such other basis as may be mutually agreed to by the parties)
following Start of Service. Subject to Subsection 5(D) below, Services shall
be billed at the rates set forth in the PET and Service Requests, as the case
may be. Discounts, if any, applicable to the rates for certain Services are
set forth in the PET. Customer will pay all undisputed charges relative to
each WilTel invoice for Services within thirty (30) days of the invoice date
set forth on each WilTel invoice to Customer ("DUE DATE"). If payment is not
received by WilTel on or before the Due Date, Customer shall also pay a late
fee in the amount of the lessor of one and one-half percent (1 1/2%) of the
unpaid balance of the charges for Services rendered per month or the maximum
lawful rate under applicable state law.
(B) Definitions Time of day rate periods (including WilTel Recognized
National Holidays) will be as described in WilTel's F.C.C. Tariff No. 5.
(c) Taxes Customer acknowledges and understands that WilTel computes all
charges herein exclusive of any applicable federal, state or local use,
excise, gross receipts, sales and privilege taxes, duties, fees or similar
liabilities (other than general income or property taxes), whether charged to
or against WilTel or Customer because of the Services furnished to Customer
("ADDITIONAL CHARGES"). Customer shall pay such Additional Charges in
addition to all other charges provided for herein.
(D) Modification of Charges WilTel reserves the right to eliminate Services
and/or modify charges for Services (which charge modifications shall not
exceed then-current generally available WilTel charges for comparable
services), upon not less than sixty (60) days prior notice to Customer, which
notice will state the effective date for the charge modification. In the
event WilTel notifies Customer of the elimination of a particular Service
and/or an increase in the charges, Customer may terminate this Agreement,
without incurring a cancellation charge only with respect to the Services
affected by the increase in charges. In
<PAGE> 14
order to cancel such Services, Customer must notify WilTel, in writing, at
least thirty (30) days prior to the effective date of the increase in charges.
Further, in the event Customer cancels its subscription to a particular Service
as described in this Subsection 5(D), WilTel and Customer agree to negotiate in
good faith concerning Customer's minimum monthly commitment, if any, described
in the PET.
(E) Billing Disputes Notwithstanding the foregoing, late fees shall apply
(but shall not be due and payable for a period of sixty (60) days following the
Due Date therefor) for amounts reasonably disputed by Customer, provided
Customer: (i) pays all undisputed charges on or before the Due Date, (ii)
presents a written statement of any billing discrepancies to WilTel in
reasonable detail on or before the Due Date of the invoice in question, and
(iii) negotiates in good faith with WilTel for the purpose of resolving such
dispute within said sixty (60) day period. In the event such dispute is resolved
in favor of WilTel, Customer agrees to pay WilTel the disputed amounts together
with any applicable late fees within ten (10) days of the resolution. In the
event such dispute is resolved in favor of Customer, Customer will receive a
credit for the disputed charges in question and the applicable late fees. In the
event the dispute can not be resolved within such sixty (60) day period (unless
WilTel has agreed in writing to extend such period) all disputed amounts
together with late fees shall become due and payable, and this provision shall
not be construed to prevent Customer from pursuing any available legal remedies.
WilTel shall not be obligated to consider any Customer notice of billing
discrepancies which are received by WilTel more than sixty (60) days following
the Due Date of the invoice in question.
(F) Suspension of Service In the event all undisputed charges due pursuant to
WilTel's invoice are not paid in full by the Due Date or disputed charges owed
by Customer, if any, are not paid in full by the time specified as described in
Subsection 5(E) above, WilTel shall have the right, after giving Customer ten
(10) days prior notice and opportunity to pay such charges, to suspend all or
any portion of the Services to Customer ("SUSPENSION NOTICE") until such time
(designated by WilTel in its Suspension Notice) as Customer has paid in full all
undisputed charges then due to WilTel, including any late fees. Following such
payment, WilTel shall reinstitute Services to Customer only when Customer
provides WilTel with satisfactory assurance of Customer's ability to pay for
Services (i.e., a deposit, letter of credit or other means acceptable to WilTel)
and Customer's advance payment of the cost of reinstituting Services. If
Customer fails to make the required payment by the date set forth in the
Suspension Notice, Customer will be deemed
<PAGE> 15
to have canceled the Services suspended effective as of the date of
suspension. Such cancellation shall not relieve Customer for payment of
applicable cancellation charges as described in Section 2.
6. CREDIT: Customer's execution of this Agreement signifies Customer's
acceptance of WilTel's initial and continuing credit approval procedures and
policies. WilTel reserves the right to withhold initiation or full
implementation of Services under this Agreement pending WilTel's initial
satisfactory credit review and approval thereof which may be conditioned upon
terms specified by WilTel, including, but not limited to, security for payments
due hereunder in the form of a cash deposit or other means. WilTel reserves the
right to modify its requirements, if any, with respect to any security or other
assurance provided by Customer for payments due hereunder in light of
Customer's actual usage when compared to projected usage levels upon which any
security or assurance requirement was based.
7. CREDITWORTHINESS: If at any time there is a material adverse change in
Customer's creditworthiness, then in addition to any other remedies available to
WilTel, WilTel may elect, in its sole discretion, to exercise one or more of the
following remedies (i) cause Start of Service for Services described in a
previously executed Service Request to be withheld; (ii) cease providing
Services pursuant to a Suspension Notice in accordance with Section 5(F); (iii)
decline to accept a Service Request or other requests from Customer to provide
Services which WilTel may otherwise be obligated to accept and/or (iv) condition
its provision of Services or acceptance of a Service Request on Customer's
assurance of payment which shall be a deposit or such other means to establish
reasonable assurance of payment. An adverse material change in Customer's
creditworthiness shall include, but not be limited to: (i) Customer's default of
its obligations to WilTel under this or any other agreement with WilTel; (ii)
failure of Customer to make full payment of all undisputed charges due hereunder
on or before the Due Date on three (3) or more occasions during any period of
twelve (12) or fewer months or Customer's failure to make such payment on or
before the Due Date in any two (2) consecutive months; (iii) acquisition of
Customer (whether in whole or by majority or controlling interest) by an entity
which is insolvent, which is subject to bankruptcy or insolvency proceedings,
which owes past due amounts to WilTel or any entity, affiliated with WilTel or
which is a materially greater credit risk than Customer; or, (iv) Customer's
being subject to or having filed for bankruptcy or insolvency proceedings or the
legal insolvency of Customer.
8. REMEDIES FOR BREACH. In the event Customer is in material breach of this
Agreement, including without limitation, failure to pay all undisputed charges
due hereunder by the date stated in the Suspension
<PAGE> 16
Notice described in Subsection 5(F), WilTel shall have the right, after giving
Customer five (5) days prior notice and opportunity to cure, and in addition to
foreclosing any security interest WilTel may have, to (i) terminate this
Agreement; (ii) withhold billing information from Customer; and/or (iii) contact
the End Users (for whom calls are originated and terminated solely over
facilities comprising the WilTel network) directly and bill such End Users
directly until such time as WilTel has been paid in full for the amount owed by
Customer. If Customer fails to make payment by the date stated in the Suspension
Notice and WilTel, after giving Customer five (5) days prior notice, terminates
this Agreement as provided in this Section 8, such termination shall not relieve
Customer for payment of applicable cancellation charges as described in Section
2 above.
9. WARRANTY. WilTel will use reasonable efforts under the circumstances to
maintain its overall network quality. The quality of Services provided hereunder
shall be consistent with telecommunications common carrier industry standards,
government regulations and sound business practices. WILTEL MAKES NO OTHER
WARRANTIES ABOUT THE SERVICES PROVIDED HEREUNDER, EXPRESS OR IMPLIED, INCLUDING
BUT NOT LIMITED TO, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR USE.
10. LIABILITY; GENERAL INDEMNITY; REIMBURSEMENT.
(A) Limited Liability IN NO EVENT WILL EITHER PARTY HERETO BE LIABLE TO THE
OTHER PARTY FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL LOSSES OR
DAMAGES, INCLUDING WITHOUT LIMITATION, LOSS OF REVENUE, LOSS OF CUSTOMERS OR
CLIENTS, LOSS OF GOODWILL OR LOSS OF PROFITS ARISING IN ANY MANNER FROM THIS
AGREEMENT AND THE PERFORMANCE OR NONPERFORMANCE OF OBLIGATIONS HEREUNDER.
(B) General Indemnity In the event parties other than Customer (e.g.,
Customer End Users) shall have use of the Services through Customer, then
Customer agrees to forever indemnify and hold WilTel, its affiliated
companies and any third-party provider or operator of facilities employed in
provision of the Services harmless from and against any and all claims,
demands, suits, actions, losses, damages, assessments or payments which those
parties may assert arising out of or relating to any defect in the Services.
(C) Reimbursement Customer agrees to reimburse WilTel for all reasonable
costs and expenses incurred by WilTel due to WilTel's direct participation
(either as party or witness) in any administrative, regulatory or criminal
proceeding concerning Customer if WilTel's involvement in said proceeding is
based solely on WilTel's provision of Services to Customer.
<PAGE> 17
11. FORCE MAJEURE. If WilTel's performance of this Agreement or any obligation
hereunder is prevented, restricted or interfered with by causes beyond its
reasonable control including, but not limited to, acts of God, fire, explosion,
vandalism, cable cut, storm or other similar occurrence, any law, order,
regulation, direction, action or request of the United States government, or
state or local governments, or of any department, agency, commission, court,
bureau, corporation or other instrumentality of any one or more such
governments, or of any civil or military authority, or by national emergency,
insurrection, riot, war, strike, lockout or work stoppage or other labor
difficulties, or supplier failure, shortage, breach or delay, then WilTel shall
be excused from such performance on a day-to-day basis to the extent of such
restriction or interference. WilTel shall use reasonable efforts under the
circumstances to avoid or remove such causes or nonperformance and shall proceed
to perform with reasonable dispatch whenever such causes are removed or cease.
12. STATE CERTIFICATION. Customer warrants that in all jurisdictions in which
it provides long distance services that require certification, it has obtained
the necessary certification from the appropriate governmental authority.
Further, if required by WilTel, Customer agrees to provide proof of such
certification acceptable to WilTel. In the event Customer is prohibited, either
on a temporary or permanent basis, from continuing to conduct its
telecommunications operations in a given state, Customer shall (i) immediately
notify WilTel by facsimile, and (ii) send written notice to WilTel within
twenty-four (24) hours of such prohibition.
13. INTERSTATE/INTRASTATE SERVICE. Except with respect to Services specifically
designated as intrastate Services or international Services, the rates provided
to Customer in a Service Schedule are applicable only to Services if such
Services are used for carrying interstate telecommunications (i.e., Services
subject to FCC jurisdiction). WilTel shall not be obligated to provide Services
with end points within a single state or Services which originate/terminate at
points both of which are situated within a single state. In those states where
WilTel is authorized to provide intrastate service (i.e., telecommunications
transmission services subject to the jurisdiction of state regulatory
authorities), WilTel will, at its option, provide intrastate Services pursuant
to applicable state laws, regulations and applicable tariff, if any, filed by
WilTel with state regulatory authorities as required by applicable law.
14. AUTHORIZED USE OF WILTEL NAME. Without WilTel's prior written consent,
Customer shall not (i) refer to itself as an authorized representative of WilTel
whenever it refers to the Services in promotional, advertising or other
materials, or (ii) use WilTel's logos, trade marks, service marks, or any
variations thereof in any of
<PAGE> 18
its promotional, advertising or other materials. Additionally, Customer shall
provide to WilTel for its prior review and written approval, all promotions,
advertising or other materials or activity using or displaying WilTel's name or
the Services to be provided by WilTel. Customer agrees to change or correct, at
Customer's expense, any such material or activity which WilTel, in its sole
judgment, determines to be inaccurate, misleading or otherwise objectionable.
Customer is explicitly authorized to only use the following statements in its
sales literature or if in response to the inquiry by Customer's end user: (i)
Customer utilizes the WilTel network", (ii) "Customer utilizes WilTel's
facilities", (iii) "WilTel provides only the network facilities", and (iv)
"WilTel is our network services provider".
15. NOTICES. Notices under this Agreement shall be in writing and delivered to
the person identified below at the offices of the parties as they appear below
or as otherwise provided for by proper notice hereunder. Customer shall notify
WilTel in writing if Customer's billing address is different than the address
shown below. The effective date for any notice under this Agreement shall be the
date of actual receipt of such notice by the appropriate party, notwithstanding
the date of mailing or transmittal via hand delivery or facsimile.
IF TO WILTEL: WorldCom Network Services, Inc.
One Williams Center, 28th Floor
Tulsa, OK 74172
Attn: Carrier Sales Dept.
IF TO CUSTOMER: Telehub Communications, Corp.
1375 Tri-State Pkwy -
Gurnee, IL 60031
Attn: Dick Eckenberg
Telephone No. (847) 599-1000
Fax No.: (847) 623-1717
16. NO-WAIVER. No term or provision of this Agreement shall be deemed waived
and no breach or default shall be deemed excused unless such waiver or consent
shall be in writing and signed by the party claimed to have waived or consented.
A consent to waiver of or excuse for a breach or default by either party,
whether express or implied, shall not constitute a consent to, waiver of, or
excuse for any different or subsequent breach or default.
17. PARTIAL INVALIDITY; GOVERNMENT ACTION.
(A) Partial Invalidity If any part of any provision of this Agreement or
any other agreement, document or writing given pursuant to or in connection
with this Agreement shall be invalid or unenforceable under applicable law,
rule or regulation, that
<PAGE> 19
part shall be ineffective to the extent of such invalidity only, without in
any way affecting the remaining parts of that provision or the remaining
provisions of this Agreement. In such event, Customer and WilTel will
negotiate in good faith with respect to any such invalid or unenforceable
part to the extent necessary to render such part valid and enforceable.
(B) Government Action Upon thirty (30) days prior notice, either party
shall have the right, without liability to the other, to cancel an affected
portion of the Service if any material rate or term contained herein and
relevant to the affected Service is substantially changed (to the detriment
of the terminating party) or found to be unlawful or the relationship between
the parties hereunder is found to be unlawful by order of the highest court
of competent jurisdiction to which the matter is appealed, the FCC, or other
local, state or federal government authority of competent jurisdiction.
18. EXCLUSIVE REMEDIES. Except as otherwise specifically provided for herein,
the remedies set forth in this Agreement comprise the exclusive remedies
available to either party at law or in equity.
19. USE OF SERVICE. Upon WilTel's acceptance of a Service Request hereunder,
WilTel will provide the Services specified therein to Customer upon condition
that the Services shall not be used for any unlawful purpose. The provision of
Services will not create a partnership or joint venture between the parties or
result in a joint communications service offering to any third parties, and
WilTel and Customer agree that this Agreement, to the extent it is subject to
FCC regulation, is an inter-carrier agreement which is not subject to the filing
requirements of Section 211(a) of the Communications Act of 1934 (47 U.S.C.
Section 211(a)) as implemented in 47 C.F.R. Section 43.51.
20. CHOICE OF LAWS FORUM.
(A) Law This Agreement shall be construed under the laws of the State of
Oklahoma without regard to choice of law principles.
(B) Forum Any legal action or proceeding with respect to this Agreement may
be brought in the Courts of the State of Oklahoma in and for the County of
Tulsa or the United States of America for the Northern District of Oklahoma.
By execution of this Agreement, both Customer and WilTel hereby submit to
such jurisdiction, hereby expressly waiving whatever rights may correspond to
either of them by reason of their present or future domicile. In furtherance
of the foregoing, Customer and WilTel hereby agree to service by U.S. Mail at
the notice addresses referenced in Section 15. Such service shall be deemed
effective upon the earlier of actual receipt or seven (7) days following
<PAGE> 20
the date of posting.
21. PROPRIETARY INFORMATION.
(A) Confidential Information The parties understand and agree that the
terms and conditions of this Agreement (but not the existence thereof), all
documents referenced herein (including invoices to Customer for Services
provided hereunder), communications between the parties regarding this
Agreement or the Services to be provided hereunder (including price quotes to
Customer for any Services proposed to be provided or actually provided
hereunder), as well as such information relevant to any other agreement
between the parties (collectively Confidential Information), are confidential
as between Customer and WilTel.
(B) Limited Disclosure A party shall not disclose Confidential Information
unless subject to discovery or disclosure pursuant to legal process, or to
any other party other than the directors, officers, and employees of a party
or a party's agents including their respective attorneys, consultants,
brokers, lenders, insurance carriers or bona fide prospective purchasers who
have specifically agreed in writing to nondisclosure of the terms and
conditions hereof. Any disclosure hereof required by legal process shall only
be made after providing the non-disclosing party with notice thereof in order
to permit the non-disclosing party to seek an appropriate protective order or
exemption. Violation by a party or its agents of the foregoing provisions
shall entitle the non-disclosing party, at its option, to obtain injunctive
relief without a showing of irreparable harm or injury and without bond.
(C) Press Releases Except as provided in Section 14 below, the parties
further agree that any press release, advertisement or publication generated
by a party regarding this Agreement, the Services provided hereunder or in
which a party desires to mention the name of the other party or the other
party's parent or affiliated company(ies), will be submitted to the
non-publishing party for its written approval prior to publication.
(D) Survival of Confidentiality The provisions of this Section 21 will be
effective as of the date of this Agreement and remain in full force and
effect for a period which will be the longer of (i) one (1) year following
the date of this Agreement, or (ii) one (l) year from the termination of all
Services hereunder.
22. SUCCESSORS AND ASSIGNMENT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors or assign's,
provided, however, that Customer shall not
<PAGE> 21
assign or transfer its rights or obligations under this Agreement without the
prior written consent of WilTel, which consent shall not be unreasonably
withheld or delayed, and further provided that any assignment or transfer
without such consent shall be void.
23. GENERAL.
(A) Survival of Terms The terms and provisions contained in this Agreement
that by their sense and context are intended to survive the performance
thereof by the parties hereto shall so survive the completion of performance
and termination of this Agreement, including, without limitation, provisions
for indemnification and the making of any and all payments due hereunder.
(B) Headings Descriptive headings in this Agreement are for convenience
only and shall not affect the construction of this Agreement.
(C) Industry Terms Words having well-known technical or trade meanings
shall be so construed, and all listings of items shall not be taken to be
exclusive, but shall include other items, whether similar or dissimilar to
those listed, as the context reasonably requires.
(D) Rule of Construction No rule of construction requiring interpretation
against the drafting party hereof shall apply in the interpretation of this
Agreement.
24. ENTIRE AGREEMENT. This Agreement consists of (i) all the terms and
conditions contained herein, and, (ii) all documents incorporated herein
specifically by reference. This Agreement constitutes the complete and
exclusive statement of the understandings between the parties and supersedes
all proposals and prior agreements (oral or written) between the parties
relating to Service provided hereunder. No subsequent agreement between the
parties concerning the Services shall be effective or binding unless it is made
in writing and subscribed to by authorized representatives of Customer and
WilTel.
IN WITNESS WHEREOF, the parties have executed this Telecommunications
Services Agreement on the date first written above.
WORLDCOM NETWORK SERVICES, INC. TELEHUB COMMUNICATIONS CORP.
d/b/a WilTel
By: By: /s/
------------------------- -----------------------------
(Signature) (Signature)
<PAGE> 22
/s/ George R. Cross - (DICK)
- ---------------------------------- -------------------------------------
(Print Name) (Print Name)
Vice President Sales/Marketing
- ---------------------------------- -------------------------------------
(Title) (Title)
<PAGE> 1
EXHIBIT - 10.5
EQUIPMENT LEASE
EQUIPMENT LEASE (this "Lease"), made as of the 11th day of November,
1996 by and between DSC FINANCE CORPORATION, a Delaware corporation, with
offices at 1000 Coit Road, Plano, Collin County, Texas, 75075 (the "Lessor"),
and TELEHUB LEASING CORPORATION, a Nevada corporation with a principal place of
business at 15 Constitution Drive, Suite 155, Bedford, New Hampshire 03110 (the
"Lessee"). In consideration of the mutual promises herein contained, the parties
hereto agree as follows:
ARTICLE 1 - LEASE
1.01 The Lessor hereby leases and lets to the Lessee and the Lessee
hereby leases and hires from the Lessor, property (collectively, the
"Equipment" and, individually, an "Item of Equipment") described in the
schedules now or hereafter executed and delivered by the parties and made a
part hereof (collectively, the "Schedules" and, individually, a "Schedule").
The Items of Equipment now subject to this Lease are described in Schedules A
and A-1 attached hereto and made a part hereof and shall be further described
in Schedules B and B-1 or further consecutive alphabetic identification.
ARTICLE 2 - TERM
2.01 The lease term for each Item of Equipment ("Lease Term") is defined
and shall commence upon the First Periodic Rent Payment Date as set forth in the
applicable Schedule and shall expire on the Lease Expiration Date as set forth
in the applicable Schedule unless earlier terminated, renewed, or extended and
such Items of Equipment returned, all according to the terms of this Lease and
the applicable Schedule. The Lessee will signify its receipt of the applicable
Item of Equipment by the execution and delivery to the Lessor of a Certificate
of Acceptance in the form of Schedule A-1 attached to Schedule A made a part
hereof. The Lessee's execution and delivery to the Lessor of the Certificate of
Acceptance with respect to each Item of Equipment shall conclusively establish
as between the Lessor and the Lessee that such Item of Equipment has been
shipped to and received by the Lessee under the Lease, notwithstanding any
defect with respect to design, manufacture, condition or in any other respect.
Lessee shall not unreasonably delay acceptance of the Equipment.
ARTICLE 3 - RENT
3.01 AMOUNT. The rent of any and every Item of Equipment shall be the
amount designated in the applicable Schedule. The Lessee shall pay said rent
monthly, in the amounts and at the time set forth in the applicable Schedule,
to the Lessor at the address indicated above, or to such other person or at
such other place as the Lessor may from time to time designate.
3.02 DEFAULT. A default shall occur if:
<PAGE> 2
Telehub Equipment Lease
Page 2 of 11
(a) the Lessee with regard to any Item or Items of Equipment fails to
pay any rent or other amount herein provided within five (5) days after the
same is due and payable;
(b) any execution or any other writ of process shall be issued in any
action or proceeding against the Lessee whereby any Item of Equipment may be
seized, taken or distrained;
(c) a proceeding in bankruptcy, receivership, or insolvency shall be
instituted by or against the Lessee, any guarantor of the Lessee's obligations
hereunder (each such guarantor referred to as a "Guarantor") or their respective
property and, if any such proceeding is commenced against the Lessee or any
Guarantor, such proceedings shall not have been dismissed within sixty (60) days
of such commencement;
(d) the Lessee or any Guarantor shall enter into any arrangement or
composition with their respective creditors;
(e) the Lessee, with regard to any Item or Items of Equipment, fails
to observe, keep or perform any term, covenant or agreement contained in
Sections 6.01 or 11.02;
(f) the Lessee, with regard to any Item or Items of Equipment, fails to
observe, keep, or perform any other provision of this Lease required to be
observed, kept, or performed by the Lessee and such failure continues uncured
for ten (10) days after notice thereof from the Lessor to the Lessee;
(g) a Guarantor, if any, with regard to any Item or Items of Equipment,
fails to observe, keep, or perform any provision of the guaranty agreement
entered into by such Guarantor (such guaranty agreement, as amended,
supplemented or otherwise modified from time to time, is referred to as a
"Guaranty") required to be observed, kept, or performed by said Guarantor and
such failure continues uncured for such period of time, if any, as set forth in
such Guaranty; or
(h) for any reason a Guaranty, if any, with regard to any Item or
Items of Equipment, ceases to be in full force and effect, or any Guarantor or
any other person shall institute an action seeking a determination that a
Guaranty shall not be in full force and effect, or any action shall be taken to
discontinue a Guaranty or to assert the invalidity of a Guaranty.
Upon the occurrence of a default, the Lessor shall have the right to
exercise any one or more of the following remedies:
(1) To declare the entire amount of rent and any other amounts
hereunder immediately due and payable as to any or all Items of
Equipment shipped to and received by Lessee, without presentment,
demand or notice to the Lessee of any kind, all of which are hereby
expressly waived by the Lessee;
(2) To sue for and recover all rents and other payments then accrued or
thereafter accruing, with respect to any or all Items of Equipment,
and all damages for the breach of this Lease;
<PAGE> 3
Telehub Equipment Lease
Page 3 of 11
(3) To demand that the Lessee deliver any or all Items of Equipment
immediately to the Lessor at the Lessee's expense to such location
in the continental United States as the Lessor shall specify, or to
take possession of any or all Items of Equipment, after notice to
Lessee if so required by law, wherever the same may be located,
without any court order or other process of law. After having taken
possession of any such Item of Equipment, the Lessor, at its option,
shall have the right to, and may retain, sell, lease, or Otherwise
dispose of any such Item of Equipment. The Lessee hereby waives any
and all damages occasioned by such taking of possession or other
actions which the Lessor is allowed hereunder. Any said taking of
possession shall not constitute a termination of this Lease as to
any or all Items of Equipment unless the Lessor expressly so
notifies the Lessee in writing;
(4) To terminate this Lease as to any or all Items of Equipment; or
(5) To pursue any other remedy at law or in equity.
Notwithstanding any such repossession, or any other action that the
Lessor may take, the Lessee shall be and remain liable for the full performance
of all obligations to be performed by the Lessee under this Lease.
All such remedies are cumulative, and may be exercised concurrently or
separately and the election of one remedy will not be deemed to be an election
of remedies to preclude the exercise of any other remedy.
3.03 INTEREST. If the Lessee fails to pay any part of the rent herein
reserved or any other sum required by the Lessee to be paid to the Lessor within
five (5) days after the due date thereof, the Lessee shall pay to the Lessor
interest on such delinquent payment from the due date thereof until paid at the
rate of eighteen percent (18%) per annum or the highest rate allowed by
applicable law, whichever is less.
3.04 OFFSET. This Lease is a net lease. The Lessees, obligations to pay
rent and all other amounts payable by it hereunder to the Lessor or any assignee
of the Lessor, as well as its obligations to perform or observe, as the case may
be, its other agreements hereunder are absolute and unconditional and are not
and shall not be subject to any abatement, reduction, offset, setoff,
counterclaim, recoupment, defense, deferment, or interruption for any reason
whatsoever. Except as expressly provided herein, this Lease shall not terminate,
nor shall the Lessee's obligations hereunder be affected, by reason of any
defect in, damage to, or loss of any Item of Equipment, the failure of the
manufacturer of any Item of Equipment to perform on its warranties or any one of
them, the prohibition of or interference with the Lessee's use thereof by any
person, corporation, or governmental authority, the invalidity or
unenforceability or lack of due authorization of this Lease, or for any other
cause whether similar or dissimilar to the foregoing, it being the express
intention of the Lessor and the Lessee that all rent payable by the Lessee
hereunder shall be, and continue to be payable in all events unless the
obligation to pay the same shall be terminated pursuant to the express
provisions of this Lease.
<PAGE> 4
Telehub Equipment Lease
Page 4 of 11
ARTICLE 4 - USE
4.01 MANNER OF USE. The Lessee shall at all times use the Equipment in
a careful and proper manner in conformity with the manufacturer's specifications
thereof and shall comply with all laws, ordinances, and regulations and all
conditions of insurance required hereby which relate in any way to the
possession, use, or maintenance of the Equipment. Nothing herein contained shall
be construed to deny the fact that the Equipment is, and shall at all times be
and remain the sole and exclusive property of the Lessor as agreed in Article
11.01 hereof.
4.02 MARKINGS. If at any time during the term of this Lease, the Lessor
supplies the Lessee with labels, plates, or other markings stating that the
Equipment is owned by the Lessor, the Lessee shall affix and keep the same in a
prominent place on the Equipment.
ARTICLE 5 - INSPECTION
5.01 The Lessor shall, at any and all times during business hours upon
reasonable notice (provided, however, that no such notice shall be required
after the occurrence of a default hereunder as set forth in Section 3.02), have
the right to enter into and on the premises where the Item of Equipment may be
located for the purpose of inspecting the same; observing its use or for any
other purpose including the enforcement of Lessor's rights hereunder in the
event of a default by Lessee or any Guarantor. The Lessee shall give the Lessor
immediate notice of any attachment or other judicial process affecting any Item
of Equipment and shall, whenever requested by the Lessor, advise the Lessor of
the exact location of each Item of Equipment. Notwithstanding the foregoing,
Lessee shall not remove any Item of Equipment from its original installation
site without the prior written approval of Lessor, which may be withheld or
granted by Lessor in its sole discretion.
ARTICLE 6 - ALTERATIONS AND REPAIRS
6.01 ALTERATIONS. Without the prior written consent of the Lessor, the
Lessee shall not make any alterations, additions, or improvements to the
Equipment. All additions and improvements of whatsoever kind or nature made to
the Equipment shall belong to and become the property of the Lessor on the
termination of the Lease.
6.02 REPAIRS. Lessee, at its own cost and expense, shall keep the Item
of Equipment in good repair, condition, and working order and shall furnish any
and all parts, mechanisms and devices and services required to keep the Item of
Equipment in good repair, condition, and working order.
ARTICLE 7 - LOSS AND DAMAGE
7.01 RISK OF LOSS AND DAMAGE. The Lessee hereby assumes and shall bear
the entire risk of loss and damage, and destruction to each Item of Equipment
from any and every cause from and after date of shipment of the Equipment to
its final location and thereafter until such Item of Equipment has been
<PAGE> 5
Telehub Equipment Lease
Page 5 of 11
returned to Lessor, as herein provided. No loss, damage, or destruction to any
Item of Equipment or any part thereof shall impair any obligation of the Lessee
under this lease which shall continue in full force and effect, including, but
not limited to, the obligation to pay the monthly rental hereunder.
7.02 DUTIES OF LESSEE. In the event of loss or damage of any kind (but
not beyond economical repair) to any Item of Equipment during the Lease Term
and thereafter until such Item of Equipment has been returned to Lessor, as
herein provided, the Lessee, at the option of the Lessor but at the sole cost
and expense of Lessee, shall:
(1) Place the same in good repair, condition, and working order; or,
(2) Replace the same with like Item of Equipment in good repair,
condition, and working order.
7.03 STIPULATED LOSS VALUE. If any Item of Equipment is lost, stolen,
destroyed, requisitioned by any governmental authority, or damaged beyond
repair, the Lessee shall pay the Lessor therefor in cash the Stipulated Loss
Value for such Item of Equipment as set forth in the applicable Schedule hereto.
On such payment, this Lease shall terminate with respect to such Item of
Equipment so paid for and the Lessee thereupon shall receive title to such Item
of Equipment "as-is", "where is", and "with all faults" without warranty,
express or implied, with respect to any matter whatsoever. Notwithstanding the
manner in which the Stipulated Loss Value is to be calculated or otherwise, no
such loss, theft, destruction, requisition by any governmental authority, or
damage beyond economical repair of any Item of Equipment shall impair any
obligation of Lessee under this Lease, all of which shall continue in full force
and effect including, but not limited to, the obligation to pay the monthly
rental hereunder.
ARTICLE 8 - INSURANCE AND TAXES
8.01 INSURANCE. The Lessee shall keep each Item of Equipment insured
against all risk of loss or damage from every cause whatsoever by public
liability and property damage insurance policies covering each Item of
Equipment in form and amount and with companies approved by the Lessor and
shall name Lessor, Lessee, and Lessor`s assignees as loss payees and/or
additional insureds, as their interests may appear. The Lessee shall pay the
premiums therefor, at its sole cost and expense, and shall deliver to the
Lessor evidence of such policies satisfactory to the Lessor. Each insurer shall
agree, by endorsement on the policy issued by it or by independent instrument
furnished to the Lessor, that it will give the Lessor thirty (30) days notice
before the policy in question shall be altered or canceled. The proceeds of
such insurance, at the option of the Lessor, shall be applied;
(1) Toward the replacement, restoration, or repair of such Item
of Equipment; or
(2) Toward payment of the Lessee's obligations hereunder.
The Lessee hereby appoints the Lessor as the Lessee's attorney in fact
to make claim for, receive payment of, and execute and endorse all documents,
checks, or drafts for loss or damage under any said
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Telehub Equipment Lease
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insurance policy. At the Lessor's request, the Lessee shall furnish the Lessor
with evidence reasonably satisfactory to the Lessor that the insurance coverage
required hereby is in effect.
8.02 TAXES. The Lessee shall keep the Equipment free and clear of all
levies, liens, and encumbrances and shall pay all license fees, registration
fees, assessments, charges, and taxes which may now or hereafter be imposed on
the ownership, leasing, renting, sale, possession, or use of the Equipment,
excluding, however, all taxes on or measured by the Lessor's income. When
requested by Lessor, Lessee shall provide to Lessor evidence of any payment
required to be made by Lessee hereunder.
8.03 LESSOR'S PAYMENT. In case of failure of the Lessee to procure or
maintain said insurance or to pay said fees, assessments, charges and taxes, as
herein before specified, the Lessor shall have the right, but shall not be
obligated, to effect such insurance, or pay said fees, assessments, charges,
and taxes, as the case may be. In that event, the cost thereof shall be
repayable to the Lessor with the next installation of rent, and failure to
repay the same shall carry with it the same consequences, including interest at
eighteen percent (18%) per annum (or the highest rate allowed by applicable
law, whichever is less) as failure to pay any installment of rent.
ARTICLE 9 - WARRANTIES
9.01 LESSOR SHALL HAVE NO LIABILITY TO LESSEE FOR ANY CLAIM, LOSS, OR
DAMAGE (INCLUDING, BUT NOT LIMITED TO, LOST REVENUES OR LOST PROFITS) CAUSED OR
ALLEGED TO BE CAUSED DIRECTLY, INDIRECTLY, INCIDENTALLY, OR CONSEQUENTLY BY THE
EQUIPMENT OR ANY ITEM OF EQUIPMENT, BY ANY INADEQUACY THEREOF OR DEFICIENCY OR
DEFECT THEREIN, OR BY ANY INCIDENT, WHATSOEVER IN CONNECTION THEREWITH, ARISING
IN STRICT LIABILITY, NEGLIGENCE OR OTHERWISE, OR IN ANY WAY RELATED TO OR
ARISING OUT OF THIS LEASE. THE LESSOR MAKES NO EXPRESS OR IMPLIED WARRANTIES OF
ANY KIND, INCLUDING THOSE OF MERCHANTABILITY, DURABILITY, CONDITION, AND FITNESS
FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE EQUIPMENT AND EXPRESSLY
DISCLAIMS THE SAME. FURTHER, THE LESSEE CONFIRMS THAT IT DECIDED TO LEASE THE
EQUIPMENT ON THE BASIS OF ITS OWN JUDGMENT AND EXPRESSLY DISCLAIMS RELIANCE UPON
ANY STATEMENTS, REPRESENTATIONS, OR WARRANTIES MADE BY THE LESSOR, AND THE
LESSEE ACKNOWLEDGES THAT THE LESSOR IS NOT A MANUFACTURER OR VENDOR OF ANY PART
OF THE EQUIPMENT. As to each Item of Equipment, Lessor hereby assigns to
Lessee, without recourse, during the term hereof all applicable manufacturer's
warranties which by their terms are so assignable. The Lessee shall take all
reasonable action to enforce such warranties to the extent so assigned. All
claims or actions on any warranty so assigned shall be made and prosecuted by
the Lessee at its sole expense, and the Lessor shall have no obligation to claim
any warranty. The Lessee shall keep the Lessor informed of any such claim or
action by the Lessee, and any recovery under such warranty shall be payable
jointly to the Lessor and the Lessee, as their interests may appear. All
proceeds of such recovery shall be used to repair or replace the Equipment.
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Telehub Equipment Lease
Page 7 0f 11
ARTICLE 10 - PERSONAL PROPERTY
10.01 The Equipment is, and shall at all times be and remain, personal
property, notwithstanding that the Equipment or any part thereof may be, or
hereafter become, in any manner affixed or attached to, or embedded in, or
permanently resting on, real property or any building thereon, or attached in
any manner to that which is permanent as by means of cement, plaster, nails,
screws, or otherwise. If requested by the Lessor, the Lessee shall obtain, prior
to delivery of any Item of Equipment, a certificate in form satisfactory to the
Lessor from each party having an interest in the real property where any Item of
Equipment may be located, waiving any claim with respect to such Item of
Equipment. Lessee agrees to execute and file Uniform Commercial Code financing
statements and any and all other instruments necessary to perfect the Lessor's
or such other person's interest in any or all of this Lease, any Schedule, the
payments due hereunder and the Equipment. Lessor may file a copy of this Lease,
as well as any Schedule, as a financing Statement.
ARTICLE 11 - OWNERSHIP AND ASSIGNMENT
11.01 OWNERSHIP. The Equipment is, and shall at all times be and remain,
the sole and exclusive property of the Lessor. The Lessee shall have no right,
title, or interest therein, except as expressly set forth in this Lease. Lessee
will execute and deliver to Lessor documentation reasonably requested by Lessor
confirming Lessor's ownership interest in the Equipment.
11.02 ASSIGNMENT. Without the prior written consent of the Lessor, the
Lessee shall not:
(1) Assign, transfer, pledge, or hypothecate this Lease, the Equipment
or any Item of Equipment, or any interest in it; or,
(2) Sublet or lend the Equipment or any Item of Equipment, or permit the
Equipment or any Item of Equipment to be used by anyone other than
the Lessee, the Lessee's employees or the Lessee's subcontractors.
11.03 LESSOR'S ASSIGNMENT. It is understood that the Lessor
contemplates assigning this Lease or mortgaging the Equipment or any Item of
Equipment, and that any assignee of Lessor may assign it. All rights of the
Lessor under this Lease may be assigned, pledged, mortgaged, transferred, or
otherwise disposed of, either in whole or in part, with written notice to the
Lessee. If the Lessor assigns this Lease or the rentals due or to become due
hereunder or any other interest herein, whether as security for any of its
indebtedness or otherwise, no breach or default by the Lessor hereunder or
pursuant to any other agreement between the Lessor or Lessee, should there be
one, shall excuse performance by the Lessee of any provision hereunder. No such
assignee shall be obligated to perform any duty, covenant, or condition required
to be performed by the Lessor under the teams of this Lease; provided, however,
that no such assignment shall impair or diminish Lessor's obligations hereunder.
The Lessee hereby consents to any such documentation as the Lessor or any such
assignee may require
<PAGE> 8
Telehub Equipment Lease
Page 8 of 11
and to furnish to any such assignee copies of any notices given by the Lessee
under this Lease or any Schedule.
ARTICLE 12 - INDEMNITY
12.01 The Lessee shall indemnify the Lessor against, and shall hold the
Lessor harmless from, any and all claims, actions, suits, proceedings, costs,
expenses, damages, and liabilities, including reasonable attorney's fees,
arising out of, connected with, or resulting from the Equipment, any Item of
Equipment, or this Lease, including without limitation, the selection, delivery,
possession, use, operation, or return of the Equipment and any Item of
Equipment. The indemnities and assumptions of liability provided in this Lease,
including this Article 12, shall continue in full force and effect
notwithstanding the termination of this Lease or any Schedule, whether by
expiration of time, by operation of law, or otherwise. If Lessor advised Lessee
in good faith that an important general interest of Lessor is involved in any
claim, Lessor may control any defense or settlement without diminution of
Lessee's obligations hereunder.
ARTICLE 13 - PURCHASE OPTION
13.01 On the Lease Expiration Date as to each and every Item of
Equipment, all rents theretofore due and payable having been paid in full and
Lessee having performed all of its other obligations hereunder, the Lessee shall
have the option to purchase such Item of the Equipment on "AS-IS", "WHERE-IS"
and "WITH ALL FAULTS" basis without warranty by Lessor, for ONE DOLLAR ($1.00).
In connection with any sale of any such Item of Equipment and the bill of sale
corresponding thereto shall expressly state, that such Item of Equipment is sold
"as-is", "where is" and "with all faults," and Lessor shall make no express or
implied warranties of any kind, including those of merchantability, durability,
condition, and fitness for a particular purpose or use and the bill of sale
shall expressly disclaim the same. Upon this purchase, the Lessor will duly
execute and deliver to the Lessee all documents necessary and proper to effect
transfer of ownership of such Item of Equipment to the Lessee, free and clear of
all encumbrances, security interest, and liens (other than encumbrances,
security interests, or liens suffered or permitted by the Lessee to become
effective thereon), upon payment by the Lessee of the purchase price and
thereupon this Lease shall terminate as to such Equipment, and no further rents
shall become due in respect to such Item of Equipment so purchased by Lessee.
ARTICLE 14 - RETURN OF EQUIPMENT
14.01 Upon termination of this Lease with respect to any Item of
Equipment, the Lessee shall return such Item of Equipment to such location in
the continental United States as the Lessor shall specify, unless the Lessee
shall have purchased such Item of Equipment and shall have paid all amounts due
in connection therewith as provided herein. Upon such return, such Item of
Equipment shall be in good order and condition, ordinary wear and tear excepted,
shall be certified for manufacturer's maintenance and shall be free and clear of
all liens and encumbrances. Notwithstanding any other provision contained
herein, until such Item of Equipment is placed on board the carrier destined for
the
<PAGE> 9
Telehub Equipment Lease
Page 9 of 11
location specified by the Lessor all of the provisions of this Lease with
respect thereto shall continue in full force and effect. The Lessee shall pay
all costs and expenses in connection with or incidental to the return of each
Item of Equipment, including, without limitation, the cost of removing,
assembling, packing, insuring, and transporting the same.
ARTICLE 15 - LESSEE'S REPRESENTATIONS AND WARRANTIES
15.01 The Lessee represents and warrants to and agrees with Lessor that:
(1) the Lessee is and (except as expressly permitted hereinbelow) shall continue
to be a corporation duly organized and validly existing in good standing under
the laws of the state of its incorporation, is duly qualified and in good
standing in all other jurisdictions in which Equipment may be located, and is
not exempt from United States income taxation; (2) the Lessee's execution,
delivery, and performance of this Lease, each Schedule, and the other documents
herein contemplated have been (or if the same should be not yet executed and
delivered, at the time of such execution and delivery, will have been) duly
authorized by all necessary corporation action, will not result in any breach,
default or violation of or under the Lessee's certificate of incorporation or
bylaws or any agreement, order, or law by which the Lessee is or may be bound or
its property is or may be affected; (3) this Lease as well as each Schedule and
the other documents contemplated herein constitute (or if the same should be not
yet executed and delivered, at the time of such execution and delivery, will
constitute) the legal valid, and binding obligations of the Lessee enforceable
against the Lessee in accordance with their respective terms; (4) all financial
statements and other information heretofore furnished by the Lessee to the
Lessor were when so furnished (or if the same shall be furnished hereafter, when
so furnished shall be) true and complete; and (5) upon any consolidation or
merger of the Lessee with or into any other corporation(s) or upon any sale or
conveyance of substantially all of the property of the Lessee to any other
person or entity, the Lessee will cause the due and punctual performance and
observance of all covenants and obligations of the Lessee hereunder to be
assumed by the surviving corporation or by the person or entity which shall have
acquired such property. The foregoing representations, warranties, and
agreements shall remain in effect throughout the term of this Lease.
ARTICLE 16- GENERAL PROVISIONS
l6.01 COSTS AND EXPENSES. The Lessee shall pay or reimburse the Lessor
within five (5) days of demand therefor for all costs and expenses incurred by
the Lessor in connection with the preparation, delivery and execution of this
Lease or any document or instrument in connection with this Lease, the
consummation of the transactions contemplated by this Lease, and the
enforcement or attempted enforcement of any rights or remedies under this Lease
or any document or instrument in connection with this Lease (including in
connection with any restructuring or "workout" of any lease related to an Item
of Equipment, including in any bankruptcy or insolvency proceeding). In the
event of litigation by either party against the other to enforce its rights
hereunder, the prevailing party shall be entitled to all reasonable costs and
expenses including reasonable attorney's fees.
16.02 INFORMATION. Lessee agrees to furnish to the Lessor: (i) copies
of annual financial statements, including a copy of the balance sheet and profit
and loss statement of the Lessee certified to
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Telehub Equipment Lease
Page 10 of 11
by an authorized financial officer of the Lessee; and (ii) such additional
information as the Lessor or any assignee may reasonably request concerning the
Lease in order to enable the Lessor or assignee to determine whether the
covenants, terms, and provisions of the Lease have been complied with by the
Lessee.
16.03 CONCURRENT REMEDIES. No right or remedy herein conferred on or
reserved to the Lessor is exclusive of any right or remedy herein or by law or
equity provided or permitted; but each shall be cumulative of every other right
or remedy given hereunder or now or hereafter existing at law or in equity or by
statute or otherwise, any may be enforced concurrently therewith or from time to
time.
16.04 NONWAIVER. No covenant or condition of this Lease may be waived
except by the written consent of the Lessor. Forbearance or indulgence by
the Lessor in any regard whatsoever shall not constitute a waiver of the
covenant or condition to be performed by the Lessee to which the same may
apply, and, until complete performance by the Lessee of any covenant or
condition, the Lessor shall be entitled to invoke any remedy available to the
Lessor under this Lease or by law or in equity despite any forbearance or
indulgence.
16.05 ENTIRE AGREEMENT. This Lease constitutes the entire agreement
between the Lessor and the Lessee and supersedes any prior understanding or
written or oral agreements between the parties respecting the within subject
matter. It shall not be amended, altered, or changed except by a written
agreement signed by the parties hereto.
16.06 NOTICES. Service of all notices under this Lease shall be
sufficient if given personally or mailed to the party involved at its respective
address hereinabove set forth, or at such address as such party may provide in
writing from time to time. Any such notice mailed to such address shall be
effective when deposited in the United States mail, duly addressed, and with
postage prepaid.
16.07 TIME. Time is of the essence with reference to payment in this
Lease, and in each and all of its provisions.
16.08 PARTIES BOUND. This Lease shall be binding upon and insure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, legal representatives, successors, and assigns where permitted
by this Lease. As used herein, the term "Lessor" shall include all assignees of
the Lessor.
16.09 LEGAL CONSTRUCTION. If any one or more of the provisions contained
in this Lease shall, for any reason, be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provision hereof and the Lease shall be construed as
if such invalid, illegal, or unenforceable provision had never been contained
herein. THIS LEASE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS. Lessee hereby expressly and irrevocably agrees that
Lessor may bring any action or claim to enforce the provisions of this Lease in
the State of Texas, and the Lessee hereby irrevocably consents to personal
jurisdiction in the appropriate State of Texas or Federal District Court
therein.
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Telehub Equipment Lease
Page 11 of 11
Lessee hereby further irrevocably consents to service of process in accordance
with the provisions of the laws of the State of Texas.
16.10 POWER OF ATTORNEY. The Lessee hereby irrevocably constitutes and
appoints Lessor and any officer or agent thereof, with full power of
substitution and resubstitution, as its true and lawful attorney-in-fact with
full irrevocable power and authority in the place and stead of the Lessee and
in the name of Lessee or in its own name, from time to time in the Lessor's
discretion, to take any and all appropriate action to execute any document or
instrument that may be necessary or desirable to protect the Lessor's title or
other interest in any Item of Equipment, including, without limitation, any UCC
financing statement or similar document, any document related to insurance with
respect to any Item of Equipment, or any document related to taxes or other
charges with respect to any Item of Equipment. The powers conferred on the
Lessor under this paragraph are solely to protect its interest in the Equipment
or any Item of Equipment and shall not impose any duty upon Lessor to exercise
any such powers. The Lessor shall be accountable only for its acts and for
amounts that it actually receives as a result of the exercise of such powers
and neither it nor any of its officers, directors, employees, or agents shall
be responsible to the Lessee for any act or failure to act.
16.11 FURTHER ASSURANCES. The Lessee will, at its own expense, promptly
and duly execute and deliver to the Lessor such further documents and
assurances and take such further action as the Lessor may from time to time
request in order to more effectively carry out the intent and purpose of this
Lease and to establish and protect the rights, interests, and remedies created
or intended to be created in favor of the Lessor hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Lease the day
and year first above written.
LESSEE: LESSOR:
TELEHUB LEASING CORPORATION DSC FINANCE CORPORATION
X /s/ D. H. Sledge X /s/ Lieschen C. Bibby
----------------------------- -------------------------------
By: D. H. SLEDGE By: LIESCHEN C. BIBBY
----------------------------- ------------------------------
Its: CEO Its: DIRECTOR-FINANCE
---------------------------- ------------------------------
<PAGE> 1
EXHIBIT 10.6
LOAN AND SECURITY AGREEMENT
THIS AGREEMENT (the "Agreement"), dated as of May 5, 1998 is entered into
by and between Telehub Communications Corporation, a Nevada corporation, d/b/a
Pacific TeleHub Communications Corporation, having a principal place of business
at 2033 N. Main Street, Suite 340, Walnut Creek, CA 94596 (the "Borrower") and
Comdisco, Inc., a Delaware corporation, having a principal place of business at
6111 North River Road, Rosemont, Illinois 60018 (the "Lender"). In consideration
of the mutual agreements contained herein, the parties hereto agree as follows:
WHEREAS, Borrower desires to borrow from the Lender hereunder the amount of
TWELVE MILLION and 00/100 DOLLARS ($12,000,000) and Lender is willing to lend
said amount to Borrower on May 5, 1998 (the "Funding Date");
NOW, THEREFORE, it is agreed:
SECTION 1. DEFINITIONS
Unless otherwise defined herein, the following capitalized terms shall have
the following meanings (such meanings being equally applicable to both the
singular and plural form of the terms defined);
1.1 "ACCOUNT" means any "account," as such term is defined in Section
9106 of the UCC, now owned or hereafter acquired by Borrower or in which
Borrower now holds or hereafter acquires any interest and, in any event, shall
include, without limitation, all accounts receivable, book debts and other forms
of obligations (other than forms of obligations evidenced by Chattel Paper,
Documents or Instruments) now owned or hereafter received or acquired by or
belonging or owing to Borrower (including, without limitation, under any trade
name, style or division thereof) whether arising out of goods sold or services
rendered by Borrower or from any other transaction, whether or not the same
involves the sale of goods or services by Borrower (including, without
limitation, any such obligation which may be characterized as an account or
contract right under the UCC) and all of Borrower's rights in, to and under all
purchase orders or receipts now owned or hereafter acquired by it for goods or
services, and ail of Borrower's rights to any goods represented by any of the
foregoing (including, without limitation, unpaid seller's rights of rescission,
replevin, reclamation and stoppage in transit and rights to returned, reclaimed
or repossessed goods), and all monies due or to become due to Borrower under all
purchase orders and contracts for the sale of goods or the performance of
services or both by Borrower (whether or not yet earned by performance on the
part of Borrower or in connection with any other transaction), now in existence
or hereafter occurring, including, without limitation, the right to receive the
proceeds of said purchase orders and contracts, and all collateral security and
guarantees of any kind given by any Person with respect to any of the foregoing.
Accounts specifically excludes property subject to prior existing security
interests, including, but not limited to, security interests referenced in
Exhibit B.
1.2 "CHATTEL PAPER" means any "chattel paper," as such term is defined
in Section 9105(1)(b) of the UCC, now owned or hereafter acquired by Borrower
or in which Borrower now holds or hereafter acquires any interest.
<PAGE> 2
1.3 "COLLATERAL" shall have the meaning assigned to such term in
Section 3 of this Agreement.
1.4 "COPYRIGHTS" means all of the following now owned or hereafter
acquired by Borrower or in which Borrower now holds or hereafter acquires any
interest: (i) all copyrights, whether registered or unregistered, held pursuant
to the laws of the United States, any State thereof or of any other country;
(ii) registrations, applications and recordings in the United States Copyright
Office or in any similar office or agency of the United States, any state
thereof or any other country; (iii) any continuations, renewals or extensions
thereof; and (iv) any registrations to be issued in any pending applications.
1.5 "COPYRIGHT LICENSE" means any written agreement granting any right
to use any Copyright or Copyright registration now owned or hereafter acquired.
1.6 "GENERAL INTANGIBLES" means any "general intangibles," as such term
is defined in Section 9106 of the UCC, now owned or hereafter acquired by
Borrower or Borrower's subsidiaries or in which Borrower or Borrower's
subsidiaries now holds or hereafter acquires any interest and in which Borrower
has the right to grant a security interest, and, in any event, shall include,
without limitation, all right, title and interest which Borrower may now or
hereafter have in, Copyrights, Trademarks, Patents, rights to Intellectual
Property, Licenses, permits, trade secrets, proprietary or confidential
information, inventions (whether or not patented or patentable), technical
information, procedures, designs, knowledge, know-how, software, data bases,
data, processes, models, drawings, materials and records, goodwill (including,
without limitation, the goodwill associated with any Trademark, Trademark
registration or Trademark licensed under any Trademark License), to sue for
past, present and future infringement of Copyrights, Trademarks and Patents.
General Intangibles specifically excludes any property subject to prior
existing security interests, including but not limited to, those referenced in
Exhibit B.
1.7 "INTELLECTUAL PROPERTY" means all Copyrights, Trademarks, Patents,
trade secrets, source codes, customer lists, proprietary or confidential
information, inventions (whether or not patented or patentable), technical
information, procedures, designs, knowledge, know-how, software, data bases,
skill, expertise, experience, processes, models, drawings, materials and
records.
1.8 "LICENSE" means any Copyright License, Patent License, Trademark
License or other license of rights or interests now held or hereafter acquired
by Borrower or in which Borrower, and Borrower's subsidiaries or affiliates now
holds or hereafter acquires any interest and any renewals or extensions
thereof.
1.9 "PATENT LICENSE" means any written agreement granting any right
with respect to any invention on which a Patent is in existence now owned or
hereafter acquired by Borrower in which Borrower now holds or hereafter
acquires any interest.
1.10 "PATENTS" means all of the following now owned or hereafter
acquired by Borrower or in which Borrower now holds or hereafter acquires any
interest: (a) letters patent of, or rights corresponding thereto in, the United
States or any other country, all registrations and recordings thereof, and all
applications for letters patent of, or rights corresponding thereto in, the
United States or any other country, including, without limitation,
registrations, recordings and applications in the United States Patent and
Trademark Office or in any similar office or agency of the United
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<PAGE> 3
States, any State thereof or any other country; (b) all reissues,
continuations, continuations-in-part or extensions thereof; (c) all petty
patents, divisionals, and patents of addition; and (d) all patents to issue in
any such applications.
1.11 "PROCEEDS" means "proceeds," as such term is defined in Section
9306(1) of the UCC and, in any event, shall include, without limitation, (a)
any and all Accounts, Chattel Paper, Instruments, cash or other forms of money
or currency or other proceeds payable to Borrower from time to time in respect
of the Collateral, (b) any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to Borrower from time to time with respect to any
of the Collateral, (c) any and all payments (in any form whatsoever) made or
due and payable to Borrower from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Collateral by any governmental authority (or any Person acting
under color of governmental authority), (d) any claim of Borrower against third
parties (i) for past, present or future infringement of any Copyright, Patent
or Patent License or (ii) for past, present or future infringement or dilution
of any Trademark or Trademark License or for injury to the goodwill associated
with any Trademark, Trademark registration or Trademark licensed under any
Trademark License and (e) any and all other amounts from time to time paid or
payable under or in connection with any of the Collateral. Proceeds
specifically excludes proceeds from property subject to prior existing security
interests, including, but not limited to, the security interests referenced in
Exhibit B.
1.12 "TRADEMARK LICENSE" means any written agreement granting any right
to use any Trademark or Trademark registration now owned or hereafter acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest.
1.13 "TRADEMARKS" means any of the following now owned or hereafter
acquired by Borrower or in which Borrower now holds or hereafter acquires any
interest: (a) any and all trademarks, tradenames, corporate names, business
names, trade styles, service marks, logos, other source or business
identifiers, prints and labels on which any of the foregoing have appeared or
appear, designs and general intangibles of like nature, now existing or
hereafter adopted or acquired, all registrations and recordings thereof, and
any applications in connection therewith, including, without limitation,
registrations, recordings and applications in the united states patent and
trademark office or in any similar office or agency of the united states, any
state thereof or any other country or any political subdivision thereof and (b)
any reissues, extensions or renewals thereof.
1.14 "ucc" shall mean the uniform commercial code as the same may, from
time to time, be in effect in the state of illinois. unless otherwise defined
herein, terms that are defined in the UCC and used herein shall have the
meanings given to them in the UCC.
SECTION 2. THE LOAN
2.1 Subject to the terms and conditions set forth herein, Lender shall
lend to Borrower the aggregate original principal amount of TWELVE MILLION and
00/100 DOLLARS ($12,000,000) (the "Loan") with interest payable over a
thirty-six (36) month period in monthly installments, payable on the first of
each month (each a "Payment Date") as set forth in the promissory note (the
"Note") in the form attached hereto and made a part hereof as Exhibit A, dated
May 5, 1998. Effective August 1, 1998, and on any Payment Date thereafter,
Borrower has the option to prepay without penalty the Note and terminate this
Agreement by paying the
3
<PAGE> 4
remaining loan principal amount together with all accrued and unpaid interest
with respect to such principal amount as of the date of prepayment.
2.2 Upon the occurrence of and during an Event of Default (as defined
herein), interest shall thereafter be calculated at a rate of five percent (5%)
in excess of the rate that would otherwise be applicable ("Default Rate"). All
such interest shall be due and payable in arrears, on the first day of the
following month.
2.3 Borrower shall within forty-five (45) days of the effective date of
its initial public offering prepay the Loan in whole, as of the next Payment
Date thereafter by paying the remaining loan principal amount being prepaid
together with all accrued and unpaid interest with respect to such principal
amount, as of the date of such prepayment.
2.4 Notwithstanding any provision in this Agreement, the Note, or any
other "Loan Document" (as defined herein), it is not the parties' intent to
contract for, charge or receive interest at a rate that is greater than the
maximum rate permissible by law which a court of competent jurisdiction shall
deem applicable hereto (which under the laws of the State of Illinois shall be
deemed to be the laws relating to permissible rates of interest on commercial
loans) (the "Maximum Rate"). If the Borrower actually pays Lender an amount of
interest, chargeable on the total aggregate principal Obligations (as
hereinafter defined) of Borrower under this Agreement and the Note (as said
rate is calculated over a period of time that is the longer of (i) the time
from the date of this Agreement through the maturity time as set forth on the
Note, or (ii) the entire period of time that any principal is outstanding on
the Note), which amount of interest exceeds interest calculated at the Maximum
Rate on said principal chargeable over said period of time, then such excess
interest actually paid by Borrower shall be applied first, to the payment of
principal outstanding on the Note; second, after all principal is repaid, to
the payment of Lender's out of pocket costs, expenses, and professional fees
which are owed by Borrower to Lender under the Agreement or the Loan Documents
(as hereinafter defined); and third, after all principal, costs, expenses, and
professional fees owed by Borrower to Lender are repaid, the excess (if any)
shall be refunded to Borrower.
2.5 In the event any interest is not paid when due hereunder,
delinquent interest shall be added to principal and shall bear interest on
interest, compounded at the rate set forth in section 2.1.
2.6 Upon and during the continuation of an Event of Default hereunder
(as defined herein), all Obligations, including principal, interest, compounded
interest, and reasonable professional fees, shall bear interest at a rate per
annum equal to the Default Rate.
SECTION 3. SECURITY INTEREST
As security for the payment of all indebtedness ("Indebtedness") of the
Borrower to the Lender hereunder and under the Note, as the same may be
renewed, extended for any period or rearranged, and the performance by the
Borrower of its other obligations hereunder (the Indebtedness and such other
obligations being hereinafter sometimes collectively referred to as the
"Obligations"), the Borrower grants to the Lender a first priority security
interest in, all the Borrower's right, title, and interest in and to the
following property ("Collateral"):
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(i) all General Intangibles, including but not limited to all
property described in Exhibit C attached hereto;
(ii) to the extent not otherwise included, all Proceeds of the
foregoing and all accessions to, substitutions and replacements
for, and rents, profits and products of each of the foregoing.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BORROWER
The Borrower represents, warrants and agrees that:
4.1 it owns all right title and interest in and to the Collateral, free
of all liens, security interests, encumbrances and claims whatsoever, except
for the interest of the Lender therein;
4.2 it has the full power and authority to, and does hereby grant and
convey to the Lender, a valid first priority perfected security interest in the
Collateral as security for the Obligations, free of all liens, security
interests, encumbrances and claims, and shall execute such Uniform Commercial
Code ("UCC") financing statements and other documentation in connection
herewith as the Lender may reasonably request to effectuate such security
interest. No other lien, security interest, adverse claim or encumbrance has
been created by Borrower or is known by Borrower to exist with respect to any
Collateral;
4.3 it is a corporation duly organized, legally existing and in good
standing under the laws of the State of Nevada, and is duly qualified as a
foreign corporation in all jurisdictions where the failure to so qualify would
have a material adverse effect on the Collateral or the business of the
Borrower taken as a whole;
4.4 the execution, delivery and performance of the Note, this
Agreement, the Warrant Agreement dated May 5, 1998 pursuant to which Borrower
granted to Lender the right to purchase the number of shares of common stock as
set forth therein ("Warrant Agreement"), and all financing statements,
certificates and other documents required to be delivered or executed in
connection herewith (collectively, the "Loan Documents") have been duly
authorized by all necessary corporate action of Borrower, the individual or
individuals executing the Loan Documents were duly authorized to do so, and the
Loan Documents constitute legal, valid and binding obligations of the Borrower,
enforceable in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, reorganization or other similar laws generally
affecting the enforcement of the rights of creditors;
4.5 the Loan Documents do not and will not violate any provisions of
its Articles of incorporation, bylaws or any contract, agreement, law,
regulation, order, injunction, judgment, decree or writ to which the Borrower
is subject, or result in the creation or imposition of any lien, security
interest or other encumbrance upon the Collateral, other than those created by
this Agreement;
4.6 to Borrower's knowledge after due inquiry, the execution, delivery
and performance of the Loan Documents do not require the consent or approval of
any other person or entity including, without limitation, any regulatory
authority or governmental body of the United States or any state thereof or any
political subdivision of the United States or any state thereof.
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<PAGE> 6
SECTION 5. INSURANCE AND RISK OF LOSS
5.1 Effective upon the Funding Date under the Note and while there are
any Obligations outstanding, Borrower shall cause to be carried and maintained
comprehensive general liability insurance with regard to the Collateral against
risks customarily insured against in the Borrower's business. Such risks shall
include, without limitation, the risks of death, bodily injury and property
damage associated with the Collateral. All policies evidencing such insurance
shall provide for at least thirty (30) days prior written notice by the
underwriter or insurance company to the Lender in the event of cancellation or
expiration, or ten (10) days in the event of cancellation due to Borrower's
nonpayment of premium.
5 2 Borrower shall and does hereby indemnify and hold Lender, its
agents and shareholders harmless from and against any and all claims, costs,
expenses, damages and liabilities (including without limitation such claims,
costs, expenses, damages and liabilities based on liability in tort including
without limitation strict liability in tort) including reasonable attorneys'
fees, arising out of Borrower's ownership, possession, operation, control, use,
maintenance, delivery, or other disposition of the Collateral, prior to
foreclosure. Notwithstanding the foregoing, Borrower shall not be responsible
under the terms of this Section 5.2 to a party indemnified hereunder for any
claims, costs, expenses, damages and liabilities occasioned by the negligence
or willful misconduct of such indemnified party.
SECTION 6. COVENANTS OF BORROWER
Borrower covenants and agrees as follows at all times while any of the
Obligations remain outstanding:
6.1 Borrower shall furnish to Lender the financial statements listed
hereinafter, prepared in accordance with generally accepted accounting
principles consistently applied (the "Financial Statements"):
(a) as soon as practicable (and in any event within sixty (60) days)
after the end of each month: an internally prepared income statement, balance
sheet, and cash flow statement, (including the commencement of any material
litigation by or against Borrower), each certified by Borrower's Chief Executive
or Financial Officer to be true and correct;
(b) as soon as practicable (and in any event within ninety (90) days)
after the end of each fiscal year, audited Financial Statements, setting forth
in comparative form the corresponding figures for the preceding fiscal year,
and accompanied by any audit report and opinion of the independent certified
public accountants selected by Borrower, and
(c) promptly any additional information (including but not limited to
tax returns, income statements, balance sheets, and names of principal
creditors) as Lender reasonably believes necessary to evaluate Borrower's
continuing ability to meet financial obligations.
(d) notwithstanding the foregoing, after the effective date of the
initial registration statement covering a public offering of Borrower's
securities, the term "Financial Statements" shall be deemed to refer to only
those statements required by the Securities and Exchange Commission, to be
provided no less frequently than quarterly.
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6.2 Borrower will from time to time execute, deliver and file, alone or
with Lender, any financing statements, security agreements or other documents;
and take all further action that may be necessary, or that Lender may
reasonably request, to confirm, perfect, preserve and protect the security
interests intended to be granted hereby, and in addition, and for such purposes
only, Borrower hereby authorizes Lender, after notice to Borrower, to execute
and deliver on behalf of Borrower and to file such financing statements,
security agreement and other documents without the signature of Borrower either
in Lender's name or in the name of Borrower as agent and attorney-in-fact for
Borrower.
6.3 Borrower will not create, incur, assume or suffer to exist any
senior security interests, mortgage, pledge, license, lien or other senior
encumbrance of any nature whatsoever on any of its assets constituting
Collateral hereunder or as to which Lender is entitled under the terms of this
Agreement to retain a senior or first security interest to secure the Loan,
excluding purchase money security interests. Borrower shall protect and defend
Borrower's title as well as the interests of the Lender against all persons
claiming any interests adverse to Borrower or Lender and shall at all times
keep the Collateral free and clear from any attachment or levy, liens or
encumbrances whatsoever (except as provided herein or any placed thereon by
Lender, or any liens arising by operation of law with respect to any
obligations not yet overdue or any other liens consented to in writing by
Lender) and shall give Lender immediate written notice thereof.
SECTION 7. CONDITIONS PRECEDENT TO LOAN
On or prior to the Funding Date, Borrower will provide to Lender the
following, in form and substance satisfactory to Lender
7.1 Executed originals of the loan documents;
7.2 Such documentation as shall reasonably evidence Borrower's right,
title and interest in and to the Collateral;
7.3 A certified resolution or other certificate of corporate authority
for the execution and the delivery of, and the performance of all Obligations
under the Loan Documents and all related documentation;
7.4 Incumbency certificate evidencing the authority and facsimile
signatures of the individuals executing the Loan Documents;
7.5 Perfection of Security Interests. Borrower shall have taken or
caused to be taken such actions requested by Lender to grant Lender a first
priority perfected security interest in the Collateral. Such actions shall
include, without limitation, the delivery to Lender of all appropriate
financing statements. executed by Borrower, as to the Collateral granted by
Borrower for all jurisdictions as may be necessary or desirable to perfect the
security interest of Lender in such Collateral.
SECTION 8. DEFAULT
The occurrence of any one or more of the following events (herein
called "Events of Default") shall constitute a default hereunder and under the
Note:
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8.1 The Borrower defaults in the payment of any principal or interest
payable under the Note for more than ten (10) days after the receipt of notice
of such an Event of Default from Lender;
8.2 The Borrower defaults in the payment or performance of any other
material covenant or obligation of the Borrower hereunder or under the Note or
any other Loan Documents for more than thirty (30) days after the Lender has
given notice of such Event of Default to the Borrower,
8.3 Any representation or warranty made herein by the Borrower shall
prove to have been false or misleading in any material respect;
8.4 The making of an assignment by Borrower for the benefit of its
creditors or the admission by Borrower in writing of its inability to pay its
debts as they become due, or the insolvency of Borrower, or the filing by
Borrower of a voluntary petition in bankruptcy, or the adjudication of Borrower
as a bankrupt, or the filing by Borrower of any petition or answer seeking for
itself any reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any present or future statute, law or
regulation, or the filing of any answer by Borrower admitting, or the failure
by Borrower to deny, the material allegations of a petition filed against it for
any such relief, or the seeking or consenting by Borrower to, or acquiescence
by Borrower in, the appointment of any trustee, receiver or liquidator of
Borrower or of all or any substantial part of the properties of Borrower, or
the inability of Borrower to pay its debts when due, or the commission by
Borrower of any act of bankruptcy as defined in the Federal Bankruptcy Act, as
amended,
8.5 The failure by Borrower, within sixty (60) days after the
commencement of any proceeding against Borrower seeking any reorganization,
arrangement, composition, readjustment, liquidation dissolution or similar
relief under any present or future statute, law or regulation, to obtain the
dismissal of such proceeding or, within sixty (60) days after the appointment,
without the written consent or acquiescence of Lender, of any trustee, receiver
or liquidator of Borrower or of all or any substantial part of the properties
of Borrower, to vacate such appointment; or Lender.
8.6 The default by Borrower under any other notes or other agreement
for borrowed money, lease or other agreement between Borrower and Lender, after
such allowed cure period has passed.
SECTION 9. REMEDIES
Upon the occurrence hereof of any one or more Events of Default.
Lender, at its option, may declare the Note to be accelerated and immediately
due and payable, (provided, that upon the occurrence of an Event of Default of
the type described in 8.4 or 8.5., the Note and all other Obligations shall
automatically be accelerated and made due and payable without any further act)
whereupon the unpaid principal of and accrued interest on such Note shall
become immediately due and payable, and shall thereafter bear interest at the
Default Rate and calculated in accordance with Section 2.2. Lender may exercise
all rights and remedies with respect to the Collateral granted pursuant hereto
for such Note, or otherwise available to it under applicable law, including the
right to release, hold or otherwise dispose of all or any part of the
Collateral and the right to utilize, process and commingle the Collateral.
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Upon the happening and during the continuance of any Event of Default,
Lender may then, or at any time thereafter and from time to time, apply,
collect, sell in one or more sales, lease or otherwise dispose of, any or all
of the Collateral, in its then condition or following any commercially
reasonably preparation or processing, in such order as Lender may elect, and
any such sale may be made either at public or private sale at its place of
business or elsewhere. Borrower agrees that any such public or private sale may
occur upon fifteen (15) calendar day's notice to Borrower. Lender may require
Borrower to assemble the Collateral and make it available to Lender at a place
designated by Lender which is reasonably convenient to Lender and Borrower. The
proceeds of any sale, disposition or other realization upon all or any part of
the collateral shall be distributed by Lender in the following order of
priorities;
First, to Lender in an amount sufficient to pay in full Lender's
reasonable costs and professionals' and advisors' fees and
expenses, associated with foreclosure and sale of the collateral;
Second, to Lender in an amount equal to the then unpaid amount of
the Obligations in such order and priority as Lender may choose
in its sole discretion; and
Finally, upon payment in full of all of the Obligations, to
Borrower or its representatives or as a court of competent
jurisdiction may direct.
The Lender shall return to the Borrower any surplus Collateral remaining after
payment of all Obligations.
SECTION 10. MISCELLANEOUS
10.1 Upon termination of this Agreement, Borrower shall remain liable
to Lender for any unpaid Obligations, advances, costs, charges and expenses in
relation to this Agreement, together with interest thereon and shall pay the
same immediately to Lender at Lender's offices.
10.2 The powers conferred upon Lender by this Agreement are solely to
protect its interest in the Collateral and shall not impose any duty upon
Lender to exercise any such powers.
10.3 This is a continuing Agreement and the grant of a security
interest hereunder shall remain in full force and effect and all the rights,
powers and remedies of Lender hereunder shall continue to exist until the
Obligations are paid in full as the same become due and payable. When Borrower
has paid in full all Obligations, Lender will execute a written termination
statement, reassigning to Borrower, without recourse, the Collateral and all
rights conveyed hereby and return possession (if Lender has possession) of the
Collateral to Borrower. The rights, powers and remedies of Lender hereunder
shall be in addition to all rights, powers and remedies given by statute or
rule of law and are cumulative. The exercise of any one or more of the rights,
powers and remedies provided herein shall not be construed as a waiver of any
other rights, powers and remedies of Lender. Furthermore, regardless of whether
or not the UCC is in effect in the jurisdiction where such rights, powers and
remedies are asserted, Lender shall have the rights, powers and remedies of a
secured party under the UCC.
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10.4 Upon payment in full of all Obligations, the Lender shall cancel
the Note, this Agreement and all UCC financing statements, if any, and shall
promptly deliver all such canceled documents to the Borrower.
10.5 GOVERNING LAW. This Agreement, the Note and the other Loan
Documents have been negotiated and delivered to Lender in the State of Illinois
and shall not become effective until accepted by Lender in the State of
Illinois. Payment to Lender by Borrower of the Obligations is due in the State
of Illinois. This Agreement shall be governed by, and construed and enforced in
accordance with the laws of the State of Illinois excluding conflict of laws
principles that would cause the application of laws of any other jurisdiction.
10.6 CONSENT TO JURISDICTION AND VENUE. All judicial proceedings
arising in or under or related to this Agreement, the Note or any of the other
Loan Documents may be brought in any state or federal court of competent
jurisdiction located in the State of Illinois. By execution and delivery of
this Agreement, each party hereto generally and unconditionally; (a) consents
to personal jurisdiction in Cook County, State of Illinois; (b) waives any
objection as to jurisdiction or venue in the aforesaid courts; and (d)
irrevocably agrees to be bound by any judgment rendered thereby in connection
with this Agreement, the Note and the other Loan Documents. Service of process
on any parry hereto in any action arising out of or relating to this agreement
shall be effective if given in accordance with the requirements for notice set
forth in Section 10.8 below and shall be deemed effective and received as set
forth in Section 10.8 below. Nothing herein shall affect the right to serve
process in any other manner permitted by law or shall limit the right of either
party to bring proceedings in the courts of any other jurisdiction.
10.7 Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
such law, such provision shall be ineffective only to the extent and duration
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
10.8 Any noting required or given hereunder shall be deemed properly
given upon the earlier of: (i) the first business day after transmission by
facsimile or hand delivery or deposit with an overnight express service or
overnight mail delivery service; or (ii) or three (3) days after mailed,
postage prepaid, in each case, addressed to the designated recipient at its
address set forth herein or such other address as such party may advise the
other party by notice given in accordance with this provision.
10.9 Lender and Borrower acknowledge that there are no agreements or
understandings, written or oral, between Lender and Borrower with respect to
the Loan, other than as set forth herein, in the Note and the other Loan
Documents and that this Agreement, the Note and the other Loan Documents
contain the entire agreement between Lender and Borrower with respect thereto.
None of the terms of this Agreement, the Note and the other Loan Documents may
be amended except by an instrument executed by each of the parties hereto.
10.10 No omission, or delay, by Lender at any time to enforce any right
or remedy reserved to it, or to require performance of any of the terms,
covenants or provisions hereof by Borrower at any time designated, shall be a
waiver of any such right or remedy to which Lender is entitled, nor shall it in
any way affect the right of Lender to enforce such provisions thereafter.
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10.11 All agreements, representations and warranties contained in this
Agreement or the Note, or in any Loan Documents delivered pursuant hereto or in
connection herewith shall be for the benefit of the Lender and any Assignee and
shall survive the execution and delivery of this Agreement or the Note and the
expiration or other termination of this Agreement or the Note.
10.12 This agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all such counterparts together
shall constitute but one and the same instrument.
10.13 CONFIDENTIALITY. Lender acknowledges that certain items of
Collateral, including, but not limited to trade secrets, source codes, customer
lists and certain other items of Intellectual Property, and any Financial
Statements provided pursuant to Section 6 hereof, constitute proprietary and
confidential information of the Borrower (the "Confidential Information").
Accordingly, Lender agrees that any Confidential Information it may obtain in
the course of acquiring, perfecting or foreclosing on the Collateral or
otherwise provided under this Agreement, provided such Confidential Information
is marked as confidential by Borrower at the time of disclosure, shall be
received in the strictest confidence and will not be disclosed to any other
person or entity in any manner whatsoever, in whole or in part, without the
prior written consent of the Borrower, unless and until Lender has acquired
indefeasible title thereto.
[The balance of this page intentionally left blank.]
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10.14 This Agreement shall be binding upon, and shall inure to the
benefit of, Borrower and its permitted assigns (if any). Borrower shall not
assign its obligations under this Agreement, the Note or any of the other Loan
Documents without Lender's express written consent and any such attempted
assignment shall be void and of no effect. Any assignment by Borrower in
connection with a "Merger" (as defined below) shall be subject to Lender's
prior consent. Any consent granted by Lender shall be conditioned upon such
surviving entity or transferee assuming Borrower's Obligations hereunder
pursuant to assignment documents reasonably acceptable to Lender. If Lender
reasonably withholds its consent to such assignment in connection with Merger,
the outstanding principal and accrued and unpaid interest shall be prepaid in
whole.
For purposes of this Agreement, a "Merger" shall mean any consolidation
or merger of the Borrower with or into any outer corporation or entity, any
sale or conveyance of all or substantially all of the assets or stock of the
Borrower by or to any other person or entity in which Borrower does not retain
voting control and in which Borrower is not the surviving entity.
IN WITNESS WHEREOF, the Borrower and the Lender have duly executed and
delivered this Agreement as of the day and year first above written.
BORROWER: TELEHUB COMMUNICATIONS CORPORATION
By: /s/ Donald H. Sledge
-------------------------------
Title: CEO
----------------------------
Date: 5/5/98
-----------------------------
ACCEPTED IN ROSEMONT, ILLINOIS
LENDER: COMDISCO, INC.
By: /s/ Bradford Wheatley
-------------------------------
Title: V.P.
----------------------------
Date: 5/5/98
-----------------------------
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EXHIBIT A
SECURED PROMISSORY NOTE
$12,000,000 Date: May 5, 1998
- -----------
Due:
FOR VALUE RECEIVED, Telehub Communications Corporation, a Nevada corporation,
d/b/a/ Pacific TeleHub Communications Corporation (the "Borrower") hereby
promises to pay to the order of Comdisco. Inc., a Delaware corporation (the
"Lender") at P.O. Box 91744, Chicago, IL 60693 or such other place of payment as
the holder of this Secured Promissory Note (this "Note") may specify from time
to time in writing, in lawful money of the United States of America, the
principal amount of TWELVE MILLION AND 00/100 DOLLARS ($12,000,000) together
with interest at twelve percent (12%) amortized over a thirty-six (36) month
period from the date of this Note through July 31, 1998. Thereafter, the
interest rate shall be adjusted to ten percent (10%) from August 1, 1998 to
maturity. Each installment on the principal hereof shall be due commencing June
1, 1998 and on the same day of each month thereafter, to and including July 1,
2002, as set forth in Schedule A attached hereto. All payments received shall
be applied first to accrued and unpaid interest and the balance to unpaid
principal. Interest shall be computed on the basis of a year consisting of
twelve months of thirty days each. The Borrower may prepay the Note at any time
without penalty or any additional costs, in accordance with section 2 "THE LOAN"
of that certain Loan and Security Agreement of even date herewith by and between
Borrower and Lender (as the same may from time to time be amended, modified or
supplemented in accordance with its terms, the "Loan Agreement").
This Note is the Note referred to in, and is executed and delivered in
connection with the Loan Agreement, and is entitled to the benefit and security
of the Loan Agreement and the other Loan Documents (as defined in the Loan and
Security Agreement), to which reference is made for a statement of all of the
terms and conditions thereof. All terms defined in the Loan and Security
Agreement shall have the same definitions when used herein, unless otherwise
defined herein.
The borrower waives presentment and demand for payment, notice of dishonor,
protest and notice of protest and any other notice as permitted under the UCC or
any applicable law.
This Note has been negotiated and delivered to Lender and is payable in the
State of Illinois, and shall not become effective until accepted by Lender in
the State of Illinois. This Note shall be governed by and construed and enforced
in accordance with, the laws of the State of Illinois, excluding any conflicts
of law rules or principles that would cause the application of the laws of any
other jurisdiction.
BORROWER: TELEHUB COMMUNICATIONS CORPORATION
Signature: /s/ Donald H. Sledge
-----------------------------
Print Name: Donald H. Sledge
Title: Chief Executive Officer
ACCEPTED IN ROSEMONT, ILLINOIS:
LENDER: COMDISCO, INC.
Signature: /s/ Bradford Wheatley
-------------------------------
Print Name: Bradford Wheatley
Title: Vice-President, Finance
<PAGE> 1
EXHIBIT 10.7
TELEHUB COMMUNICATIONS CORPORATION
1997 STOCK OPTION PLAN
1. PURPOSE OF PLAN. The purpose of this 1997 Stock Option Plan ("Plan")
is to secure and retain directors and employees responsible for the success of
TeleHub Communications Corporation, a Nevada corporation (the "Company"), to
motivate such persons to exert their best efforts on behalf of the Company, to
encourage stock ownership and provide such persons with proprietary interests
in, and a greater concern for, the welfare of, and an incentive to continue
service with the Company. For purposes of this Plan, the term "Company" shall
include where appropriate in the context used any "parent corporation" or
"subsidiary corporation" of the Company, as those terms are defined in Internal
Revenue Code ("IRC") sections 424(e) and (f), whether in existence on the date
of adoption of the Plan or formed after the adoption of this Plan. Options
issued pursuant to this Plan will constitute "incentive stock options" (as
defined in IRC Section 422) at the time of grant ("Incentive Stock Options"),
or other options ("Nonstatutory Stock Options"). Incentive Stock Options and
Nonstatutory Stock Options may both be granted hereunder and any option granted
which for any reason does not qualify as an Incentive Stock Option shall be a
Nonstatutory Stock Option. Unless the context requires otherwise, the term
"Option" in this Plan refers to both Incentive Stock Options and Nonstatutory
Stock Options.
2. STOCK SUBJECT TO THE PLAN. The Plan may issue options to purchase
Company common shares, par value $0.001 (the "Shares"); such Shares may
consist, in whole or in part, of unissued shares or treasury shares.
2.1. Total Shares Issuable. The total number of Shares issuable
pursuant to this Plan, including Shares underlying outstanding options, shall
be 3,025,000 Shares, subject to adjustment as provided in Plan Section 9.
2.2. Expiration of Plan. No option shall be granted under this Plan
after April 30, 2007 (ten years after adoption of this Plan).
2.3. Reissuance. If any outstanding Option under this Plan for any
reason expires or is terminated, the Shares underlying the unexercised portion
of such Option may again be optioned under this Plan.
3. ADMINISTRATION. The Plan shall be administered by a committee (the
"Committee") designated by the Company's Board of Directors.
3.1. Composition of Committee. The Committee shall consist of either
non-employee directors or the entire Board of Directors.
3.2. Quorum and Decisions. The decision of a majority of those present
at any meeting of the Committee where a quorum consisting of a majority of the
Committee is present shall constitute the decision of the Committee.
3.3. Compliance with Rule 16b-3. Transactions under this Plan are
intended to comply with all applicable conditions of Rule 16b-3 or its
successors promulgated by the U.S. Securities and Exchange Commission ("SEC")
under the Securities Exchange Act of 1934 (the "Exchange Act"). To the extent
any provision of the Plan or action by the Committee fails to so comply, it
shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Committee.
<PAGE> 2
4. AUTHORITY OF COMMITTEE. Consistent with this Plan, the Committee has
exclusive discretion to:
4.1. select the persons to whom Options are to be granted
("Optionees");
4.2. determine the terms and conditions of Options granted under the
Plan, such as the number of Shares, exercise price, payment terms, grant date,
vesting schedule and expiration date; such terms and conditions need not be
identical as between Options or Optionees;
4.3. interpret the Plan and the Options granted under the Plan;
4.4. adopt, amend and rescind rules and regulations for the
administration of the Plan insofar as it relates to Options; and
4.5. direct the Company to execute Stock Option agreements pursuant to
the Plan.
Actions of the Committee shall bind all participants in the Plan.
5. ELIGIBILITY. Persons who shall be eligible to receive grants of
Options under this Plan shall be those key individuals (including employees
and directors of the Company's "parent corporations" and "subsidiary
corporations") responsible for the management, growth or success of the
business of the Company and who shall have been selected by the Committee.
Only Company directors and employees are eligible to participate in this Plan.
6. TERMS AND CONDITIONS FOR ALL OPTIONS. All Options granted under this
Plan shall be subject to the terms and conditions of this Plan, including all
of the following:
6.1. Option Certificate. Optionees will receive a Stock Option
Certificate ("Certificate") enumerating the specific terms and conditions of
their Options.
6.2. Fair Market Value. For purposes of this Plan, "Fair Market Value"
of Shares underlying an option shall be determined as follows:
6.2.1. If the Shares are listed on a securities exchange, admitted
to unlisted trading privileges on a securities exchange, or quoted on the
National Association of Securities Dealers, Inc. ("NASD") system, that
reports closing prices, the Fair Market Value shall be the closing price
of the Shares as reported by the Wall Street Journal on the day the Fair
Market Value is to be determined (or the last closing price reported
prior to such day if no closing price is reported for that day);
6.2.2. If the Shares are not so listed, admitted to unlisted trading
privileges, or so quoted, the fair market Value shall be the average of
the last reported highest bid and the lowest asked prices quoted on the
NASD Automated Quotations System or, if not so quoted, then by the
National Quotation Bureau, Inc., on the day the fair market value is
determined; or
6.2.3. If the Shares are not so listed, admitted to unlisted trading
privileges, so quoted, and bid and asked prices are not reported, then
the Fair Market Value shall be the deemed per-Share price of the most
recent securities issuance by the Company;
6.2.4. Otherwise, the Fair Market Value shall be determined in such
reasonable manner as may be prescribed by the Committee.
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<PAGE> 3
6.3. Exercise Period. The Certificate will specify when the Option
becomes exercisable ("Vests") and when the Option expires ("Expiration Date");
the Option may be exercised after Vesting and before the Expiration Date
("Exercise Period"). No Option may be exercised after its expiration.
6.4. Maximum Exercise Period. No Option may be exercised more than ten
years after the date it was granted. A shorter Exercise Period may be specified
by other provisions of this Plan or by the Certificate.
6.5. Manner of Exercise. Options may be exercised by delivering an
executed Exercise Form (provided with the Certificate) to the Company's Chief
Financial Officer together with full payment for all Shares to be issued
pursuant to the exercise. All Options shall be exercised for multiples of 100
shares or the total number of Shares for which the Option is then exercisable.
The Board of Directors, and the Company's officers, shall take appropriate
action required for delivery of Shares in accordance with any exercise of
Options under this Plan.
6.6. Payment. Payment shall be tendered in cash, by certified check or
by any other payment method authorized by the Committee. The Committee has sole
discretion to authorize other methods of payment, such as a promissory note,
surrender of other Company Shares or cancellation of other Shares underlying
Optionee's vested Options. Optionees shall have rights to dividends or other
shareholder rights with respect to Shares underlying an Option only after the
Company receives full payment for such Shares.
6.7. Death of Optionee. If an Optionee dies, any Options previously
granted to the Optionee shall be exercisable only as to that portion of the
Option that had Vested by the date of Optionee's death. Any such Vested Options
shall expire on the earlier of one year after Optionee's death or the
Expiration Date. Such Vested Options shall be exercisable by the personal
representative or administrator of the deceased Optionee's estate, or by any
trustee, heir, legatee or beneficiary (collectively referred to for convenience
as the "legal representative") who shall have acquired the Vested Option
directly from the Optionee by will or by the laws of descent and distribution.
Prior to the exercise of any such Vested Option, the legal representative of
the deceased Optionee shall furnish to the Company an executed Exercise Form
together with a certified copy of letters testamentary or other proof deemed
sufficient by the Committee of the right of the legal representative to
exercise such Vested Option in accordance with the provisions of this Plan.
6.8. Disability. If an Optionee becomes disabled, then Optionee's
Vested Options shall expire on the earlier of one year after Optionee becomes
disabled or the Expiration Date. An Optionee shall be considered to be disabled
if a qualified medical physician approved by the Company certifies to the
Company that the Optionee is unable to be gainfully employed by the Company by
reason of a diagnosed and determinable physical or mental impairment which can
be expected to result in death or has lasted and can be expected to last for a
continuous period of not less than 12 months.
6.9. Retirement. If an Optionee retires from employment with the
Company, then the Optionee's Vested Options shall expire on the earlier of
three months after Optionee retires or the Expiration Date.
3
<PAGE> 4
6.10. Termination of Employment. If an Optionee's employment with the
Company is terminated, then the Optionee's Vested Options shall expire on the
earlier of three months after such termination or the Expiration Date.
6.11. Leave of Absence. A leave of absence duly authorized by the
Company shall not be deemed a termination of employment.
6.12. Non-transferability of Options. During Optionee's lifetime, an
Option may only be exercised by the Optionee. No Option may be transferred
other than by will or the laws of descent and distribution.
6.13. Minimum Holding Period. This Plan, the Committee or the
Certificate may impose a holding period on Shares acquired upon exercise of an
Stock Option.
6.14. Transfer Restrictions on Shares. Unless registered under the
Securities Act of 1933 (the "Securities Act"), all Shares acquired upon
exercise of an Option shall constitute "restricted securities" (as defined in
SEC Rule 144 promulgated by the SEC under the Securities Act). As restricted
securities, such Shares may only be offered for sale, sold or otherwise
transferred except pursuant to an effective registration statement under the
Securities Act, or pursuant to an exemption from registration under the
Securities Act; the availability of such exemption must be established to the
satisfaction of the Company. The certificates representing such Shares will
bear a legend stating these restrictions.
6.15. Other Representations and Warranties. As a further condition to
the exercise of any Option granted under this Plan, the Company may require
each Optionee to make any representation and warranty to the Company as may be
required by any applicable law or regulation.
7. SPECIAL TERMS AND CONDITIONS FOR INCENTIVE STOCK OPTIONS. In
addition to the terms and conditions contained in Section 6, all Incentive
Stock Options shall also be subject to the following additional terms and
conditions:
7.1. Only Employees Eligible. Incentive Stock Options may only be
granted to Company employees (including employees of the Company's "parent
corporations" and "subsidiary corporations"). Company directors and
shareholders may receive Incentive Stock Options only if they are also Company
employees.
7.2. Exercise Price. The Option's per Share purchase price ("Exercise
Price") shall be determined by the Committee but shall not be less than 100% of
the Share's Fair Market Value on the grant date.
7.3. Maximum Grant. The aggregate Fair Market Value of the Shares
underlying Incentive Stock Options granted to any Optionee that Vest in a
particular calendar year shall not exceed $100,000. For purposes of such
limitation, the aggregate Fair Market Value of Shares shall be determined as of
the grant date and the limitations shall be applied by considering Incentive
Stock Options in the order granted.
7.4. More than 10% Shareholder. All Incentive Stock Options granted to
persons owning more than 10% of all classes of the Company's capital stock (as
calculated in accordance with IRC Section 424(d)) must also satisfy the
following conditions:
4
<PAGE> 5
7.4.1. Exercise Price: The Exercise Price must be at least 110% of the
Shares' Fair Market Value on the grant date;
7.4.2. Expiration. The Expiration Date must be within five years
after the Incentive Stock Option's grant date.
7.5. Shareholder Approval. The Plan must be approved as an ordinary
resolution at a meeting of the Company's shareholders held within a year after
adoption of this Plan by the Company's Board of Directors.
8. SPECIAL TERMS AND CONDITIONS FOR DIRECTOR STOCK OPTIONS. In addition
to the terms and conditions contained in Section 6, all Options granted to
Company Directors for their service as Directors ("Director Stock Options")
shall also be subject to the following additional terms and conditions:
8.1. Number of Shares. Each Company Director shall annually receive an
Option to purchase 20,000 Shares. The Director Stock Options shall be granted
on the first day of the Company's fiscal year (except for 1997, when the
Director Stock Options shall be granted 30 days after adoption of this Plan).
Persons becoming Directors after a fiscal year has commenced will receive
options to purchase 5,000 Shares per quarter remaining in the fiscal year.
8.2. Exercise Period. The Director Stock Options shall vest on the
first day of the fiscal year following the grant date and expire 9 years after
vesting. A vested Director Stock Option remains exercisable until its
Expiration Date regardless of whether the Optionee remains a Company Director.
9. ADJUSTMENTS UPON RECAPITALIZATION, MERGER, ETC. If the outstanding
Shares shall at any time be changed or exchanged by declaration of a stock
dividend, split-up, subdivision or combination of shares, recapitalization,
merger, consolidation or other corporate reorganization in which the Company
(including a merger or similar reorganization which effects a reincorporation
of the Company in a different county or province) is the surviving
corporation, the number and kind of shares subject to this Plan or subject to
any Options previously granted, and the Option prices, shall be appropriately
and equitably adjusted, so as to maintain the proportionate number of shares
without changing the aggregate Option price. In the event of a dissolution or
liquidation of the Company, or a merger, consolidation, sale of all or
substantially all of its assets, or other corporate reorganization in which
the Company is not the surviving corporation and the holder of Shares receives
securities of another corporation, then any outstanding Options hereunder
shall terminate as of the effective date of such event; provided that
immediately prior to such event each Optionee shall have the right to exercise
any unexpired Option in whole or in part whether or not the Option would
otherwise be exercisable. The Company shall afford each person who holds an
Option under this Plan with at least 30 days advance written notice of such
event. The existence of this Plan, or of any Options hereunder, shall not in
any way prevent any transaction described in this section, nor shall anything
contained in this Plan prevent the substitution of a new Option by a surviving
corporation.
10. USE OF PROCEEDS. Proceeds from the exercise of Options granted under
this Plan shall constitute general funds of the Company may be used for such
general corporate purposes as the Company's Board of Directors shall
determine.
11. RESERVATION OF ISSUANCE OF SHARES. The Company shall at all times
during the duration of this Plan reserve and keep available such number of
Shares as will be sufficient to
5
<PAGE> 6
satisfy the requirements of all Options granted pursuant to this Plan,
and shall pay all original issue and transfer taxes with respect to the
issuance of shares pursuant to the exercise of such Options, and shall pay all
of the fees and expenses necessarily incurred in connection with the exercise
of such Options and the issuance of such Shares.
12. AMENDMENTS. The Board of Directors may amend, alter, or
discontinue this Plan, but no amendment, alteration or discontinuation
shall be made which would impair the rights of any Optionee under any
Options previously granted, without the Optionee's consent, or which,
without the approval of the Shareholders, would:
12.1. except as provided in Section 9 of this Plan, increase the total
number of Shares issuable under the Plan (section 2.1);
12.2. change the number of Shares issuable for Director Stock Options;
12.3. modify the provisions of the Plan relating to eligibility; or
12.4. increase the aggregate Fair Market Value of the Shares underlying
the Incentive Stock Options which may be granted under this Plan to any person
and which become exercisable in any year to an amount in excess of $100,000.
13. INDEMNIFICATION. In addition to such other rights of
indemnification as they may have as directors, Committee members and the
Board of Directors shall be indemnified by the Company against
reasonable expenses, including attorneys' fees, actually incurred in
connection with the defense of any action, suit or proceeding, or in
connection with any appeal therefrom, to which they or any of them may
be a party by reason of any action taken or failure to act under or in
connection with this Plan or any Option granted hereunder, or Shares
purchased pursuant to the exercise of an Option, and against all amounts
paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of judgment in any action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action,
suit or proceeding, that such member of the Board of Directors is liable
for gross negligence, fraud or willful misconduct in the performance of
the director's duties, so long as within 60 days after institution of
any such action, suit or proceeding, the director shall in writing offer
the Company the opportunity, at its own expense, to hand and defend such
action, suit or proceeding.
Adopted by the Board of Directors on April 30, 1997 and approved and adopted by
Shareholders on May 20, 1997.
TELEHUB COMMUNICATION CORPORATION,
a Nevada corporation
By: /s/ William W. Becker
----------------------------------
William W. Becker, Chairman
ATTEST: /s/ Richard M. Harmon
----------------------------------
Richard M. Harmon, Secretary
6
<PAGE> 1
EXHIBIT 10.8
TELEHUB COMMUNICATIONS CORPORATION
THIS OPTION IS NONTRANSFERABLE OTHER THAN BY WILL OR THE LAWS OF DESCENT AND
DISTRIBUTION AND THE SHARES UNDERLYING THIS OPTION MAY NOT BE OFFERED FOR
SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT, THE AVAILABILITY OF WHICH IS TO
BE ESTABLISHED TO THE COMPANY'S SATISFACTION.
INCENTIVE STOCK OPTION CERTIFICATE # [ ]
[Grant Date] [# ] Common Shares
TeleHub Communications Corporation, a Nevada corporation (the "Company"),
for good and valuable consideration, especially continuing to serve as a
Company employee due to ownership or increased ownership of the Company's
common shares, par value $0.001, ("Shares"), the receipt and sufficiency of
which consideration hereby is acknowledged, grants [OPTIONEE'S NAME]
("Optionee") an Incentive Stock Option ("ISO") to purchase [# ] SHARES
pursuant to the Company's 1997 Stock Option Plan (the "Plan").
1. EXERCISE PRICE. The purchase price ("Exercise Price") for Shares
purchased pursuant to this ISO is $[Exercise Price] per Share, which shall be
paid in full at the time of exercise in accordance with Section 4 below.
2. VESTING SCHEDULE AND EXPIRATION. This ISO becomes exercisable
("vests") as follows:
Immediately as to [# ] Shares;
As to [# ] Shares on January 1, 1998;
As to [# ] Shares on January 1, 1999;
As to [# ] Shares on January 1, 2000;
Optionee may exercise this ISO only with respect to vested Shares. Unless sooner
terminated as provided by this Certificate or by the Plan, this ISO shall expire
on March 26, 2007.
3. MANNER OF EXERCISE. This ISO may be exercised by delivering an
executed Exercise Form (attached to this Certificate) to the Company's Chief
Financial Officer together with full payment for all Shares to be issued
pursuant to the exercise. This ISO shall be exercised for multiples of 100
shares or the total number of Shares for which this ISO has vested.
4. PAYMENT. Payment shall be tendered in cash, by certified check or by
any other payment method authorized by the Committee. The Committee has sole
discretion to authorize other methods of payment.
5. SUBJECT TO PLAN. This ISO is subject to the terms and conditions of
the Plan and the rules and regulations for the administration of the Plan. The
Plan's terms, conditions and associated rules and regulations are incorporated
into this Certificate by reference.
6. REPRESENTATION ABOUT STOCK OWNERSHIP. Optionee does not own stock
possessing more
<PAGE> 2
than 10% of the total combined voting power or value of all classes of the
Company's outstanding capital stock (10% Ownership).
7. NON-TRANSFERABIIITY OF OPTIONS. During Optionee's lifetime, this ISO
may only be exercised by Optionee. This ISO may only be transferred by will or
the laws of descent and distribution.
8. TRANSFER RESTRICTIONS ON SHARES. Unless registered under the Securities
Act of 1933 (the "Securities Act"), all Shares acquired upon exercise of this
ISO shall constitute "restricted securities" (as defined in SEC Rule 144
promulgated under the Securities Act). As restricted securities, such Shares may
only be offered for sale, sold or otherwise transferred except pursuant to an
effective registration statement under the Securities Act, or pursuant to an
exemption from registration under the Securities Act; the availability of such
exemption must be established to the satisfaction of the Company. The
certificates representing such Shares may bear a legend stating these
restrictions.
9. HOLDING PERIOD FOR SHARES. In order to receive the favorable tax
treatment accorded to incentive stock options, Optionee must hold any Shares
acquired upon exercise of this ISO until two years after the issuance of this
ISO and one year after exercise. Although Optionee may sell such Shares prior
to that time, such sale will disqualify this ISO from treatment as an
incentive stock option.
10. DEATH OF OPTIONEE. If Optionee dies while employed by the Company, any
vested Options shall expire on the earlier of one year after Optionee's death or
the Expiration Date. Such Vested Options shall be exercisable by the personal
representative or administrator of the deceased Optionee's estate, or by any
trustee, heir, legatee or beneficiary (collectively referred to for convenience
as the "legal representative") who shall have acquired the Vested Option
directly from the Optionee by will or by the laws of descent and distribution.
Prior to the exercise of any such Vested Option, the legal representative of the
deceased Optionee shall furnish to the Company an executed Exercise Form
together with a certified copy of letters testamentary or other proof deemed
sufficient by the Committee of the right of the legal representative to exercise
such Vested Option in accordance with the provisions of this Plan.
11. DISABILITY. If Optionee becomes disabled, then Optionee's Vested
Options shall expire on the earlier of one year after Optionee becomes
disabled or the Expiration Date. An Optionee shall be considered to be
disabled if a qualified medical physician approved by the Company certifies to
the Company that the Optionee is unable to be gainfully employed by the
Company by reason of a diagnosed and determinable physical or mental
impairment which can be expected to result in death or has lasted and can be
expected to last for a continuous period of not less than 12 months.
12. RETIREMENT. If Optionee retires from employment with the Company,
then the Optionee's Vested Options shall expire on the earlier of three months
after Optionee retires or the Expiration Date.
13. TERMINATION OF EMPLOYMENT. If Optionee's employment with the
Company is otherwise terminated, then Optionee's Vested Options shall expire on
the earlier of three months after such
<PAGE> 3
termination or the Expiration Date.
14. ADJUSTMENT FOR CHANGES IN CAPITAL. If the outstanding Shares that are
subject to this ISO shall at any time be changed or exchanged by declaration
of a stock dividend, split-up, subdivision or combination of shares,
recapitalization, merger, consolidation or other corporate reorganization in
which the Company is the surviving corporation, the number and kind of shares
subject to this ISO and the Exercise Price shall be appropriately and
equitably adjusted so as to maintain the proportionate number of shares
without changing the aggregate Exercise Price. In the event of a dissolution
or liquidation of the Company, or a merger, consolidation, sale of all or
substantially all of its assets, or other corporate reorganization in which
the Company is not the surviving corporation, or in which the Company is the
surviving corporation but holders of Shares receive securities of another
corporation, this ISO shall terminate as of the effective date of such event,
provided that immediately prior to such event, Optionee shall have the right
to exercise this ISO in whole or in part; however, such exercise shall be
subject to the restrictions contained in this ISO.
15. ADMINISTRATION. The Committee designated by the Company's Board of
Directors shall have the authority, consistent with the Plan, to interpret the
Plan and this ISO, to adopt, amend and rescind rules and regulations for the
administration of the Plan and this ISO, and generally to conduct and
administer the Plan and to make all determinations in connection therewith
which may be necessary or advisable, and all such actions of the Committee
shall be final and conclusive for all purposes and binding upon Optionee.
16. MISCELLANEOUS. This ISO shall inure to the benefit of and be binding
upon each successor of the Company. All obligations imposed upon and all
rights granted to the Optionee and all rights reserved by the Company under
this ISO shall be binding upon and inure to the benefit of Optionee,
Optionee's heirs, personal representatives, administrators and successors.
Unless the context requires otherwise, words denoting the singular may be
construed as denoting the plural and the words of the plural may be construed
as denoting the singular and words of one gender may be construed as denoting
such other gender as is appropriate.
TELEHUB COMMUNICATIONS CORPORATION,
a Nevada corporation
By:
---------------------------------------
Donald. H. Sledge, Vice-Chairman
Accepted by Optionee:
---------------------------------------------------------
<PAGE> 1
EXHIBIT 10.9
TELEHUB COMMUNICATIONS CORPORATION
THIS OPTION IS NONTRANSFERABLE OTHER THAN BY WILL OR THE
LAWS OF DESCENT AND DISTRIBUTION AND THE SHARES UNDERLYING
THIS OPTION MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933 OR PURSUANT TO
AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT, THE
AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE COMPANY'S
SATISFACTION.
NON-STATUTORY STOCK OPTION CERTIFICATE # [ ]
[Grant Date] [# ] Common Shares
TeleHub Communications Corporation, a Nevada corporation (the "Company"),
for good and valuable consideration, especially continuing to serve as a
Company employee due to ownership or increased ownership of the Company's
common shares, par value $0.001, ("Shares"), the receipt and sufficiency of
which consideration hereby is acknowledged, grants [NAME OF OPTIONEE]
("Optionee") a non-statutory stock option ("NSO") to purchase [# ] SHARES
pursuant to the Company's 1997 Stock Option Plan (the "Plan").
1. EXERCISE PRICE. The purchase price ("Exercise Price") for Shares
purchased pursuant to this NSO is $[EXERCISE PRICE] per Share, which shall be
paid in full at the time of exercise in accordance with Section 4 below.
2. VESTING SCHEDULE AND EXPIRATION. This NSO becomes exercisable
("vests") as follows:
Immediately as to [# ] Shares;
As to [# ] Shares on January 1, 1998;
As to [# ] Shares on January 1, 1999;
As to [# ] Shares on January 1, 2000;
Optionee may exercise this NSO only with respect to vested Shares. Unless sooner
terminated as provided by this Certificate or by the Plan, this NSO shall expire
on March 26, 2007.
3. MANNER OF EXERCISE. This NSO may be exercised by delivering an
executed Exercise Form (attached to this Certificate) to the Company's Chief
Financial Officer together with full payment for all Shares to be issued
pursuant to the exercise. This NSO shall be exercised for multiples of 100
shares or the total number of Shares for which this NSO has vested.
4. PAYMENT. Payment shall be tendered in cash, by certified check or by
any other payment method authorized by the Committee. The Committee has sole
discretion to authorize other methods of payment.
5. SUBJECT TO PLAN. This NSO is subject to the terms and conditions of
the Plan and the rules and regulations for the administration of the Plan. The
Plan's terms, conditions and associated rules and regulations are incorporated
into this Certificate by reference.
<PAGE> 2
6. NON-TRANSFERABILITY OF OPTIONS. During Optionee's lifetime, this NSO
may only be exercised by Optionee. This NSO may only be transferred by will or
the laws of descent and distribution.
7. TRANSFER RESTRICTIONS ON SHARES. Unless registered under the
Securities Act of 1933 (the "Securities Act"), all Shares acquired upon
exercise of this NSO shall constitute "restricted securities" (as defined in
SEC Rule 144 promulgated under the Securities Act). As restricted securities,
such Shares may only be offered for sale, sold or otherwise transferred except
pursuant to an effective registration statement under the Securities Act, or
pursuant to an exemption from registration under the Securities Act; the
availability of such exemption must be established to the satisfaction of the
Company. The certificates representing such Shares may bear a legend stating
these restrictions.
8. DEATH OF OPTIONEE. If Optionee dies while employed by the Company,
any vested Options shall expire on the earlier of one year after Optionee's
death or the Expiration Date. Such Vested Options shall be exercisable by the
personal representative or administrator of the deceased Optionee's estate, or
by any trustee, heir, legatee or beneficiary (collectively referred to for
convenience as the "legal representative") who shall have acquired the Vested
Option directly from the Optionee by will or by the laws of descent and
distribution. Prior to the exercise of any such Vested Option, the legal
representative of the deceased Optionee shall furnish to the Company an
executed Exercise Form together with a certified copy of letters testamentary
or other proof deemed sufficient by the Committee of the right of the legal
representative to exercise such Vested Option in accordance with the provisions
of this Plan.
9. DISABILITY. If Optionee becomes disabled, then Optionee's Vested
Options shall expire on the earlier of one year after Optionee becomes
disabled or the Expiration Date. An Optionee shall be considered to be
disabled if a qualified medical physician approved by the Company certifies to
the Company that the Optionee is unable to be gainfully employed by the
Company by reason of a diagnosed and determinable physical or mental
impairment which can be expected to result in death or has lasted and can be
expected to last for a continuous period of not less than 12 months.
10. RETIREMENT. If Optionee retires from employment with the Company,
then the Optionee's Vested Options shall expire on the earlier of three months
after Optionee retires or the Expiration Date.
11. TERMINATION OF EMPLOYMENT. If Optionee's employment with the Company
is otherwise terminated, then Optionee's Vested Options shall expire on the
earlier of three months after such termination or the Expiration Date.
12. ADJUSTMENT FOR CHANGES IN CAPITAL. If the outstanding Shares that
are subject to this NSO shall at any time be changed or exchanged by
declaration of a stock dividend, split-up, subdivision or combination of
shares, recapitalization, merger, consolidation or other corporate
reorganization in which the Company is the surviving corporation, the number
and kind of shares subject to this NSO and the Exercise Price shall be
appropriately and equitably adjusted so as to maintain the proportionate number
of shares without changing the aggregate Exercise Price. In the event of a
dissolution or liquidation of the Company, or a merger, consolidation, sale of
all or
<PAGE> 3
substantially all of its assets, or other corporate reorganization in which
the Company is not the surviving corporation, or in which the Company is the
surviving corporation but holders of Shares receive securities of another
corporation, this NSO shall terminate as of the effective date of such event,
provided that immediately prior to such event, Optionee shall have the right
to exercise this NSO in whole or in part; however, such exercise shall be
subject to the restrictions contained in this NSO.
13. ADMINISTRATION. The Committee designated by the Company's Board of
Directors shall have the authority, consistent with the Plan, to interpret the
Plan and this NSO, to adopt, amend and rescind rules and regulations for the
administration of the Plan and this NSO, and generally to conduct and
administer the Plan and to make all determinations in connection therewith
which may be necessary or advisable, and all such actions of the Committee
shall be final and conclusive for all purposes and binding upon Optionee.
14. MISCELLANEOUS. This NSO shall inure to the benefit of and be binding
upon each successor of the Company. All obligations imposed upon and all
rights granted to the Optionee and all rights reserved by the Company under
this NSO shall be binding upon and inure to the benefit of Optionee,
Optionee's heirs, personal representatives, administrators an successors.
Unless the context requires otherwise, words denoting the singular may be
construed as denoting the plural and the words of the plural may be construed
as denoting the singular and words of one gender may be construed as denoting
such other gender as is appropriate.
TELEHUB COMMUNICATIONS CORPORATION,
a Nevada corporation
By:
---------------------------------------
Donald H. Sledge, Vice-Chairman
Accepted by Optionee:
---------------------------------------------------------
<PAGE> 1
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") made January 2, 1997, by and
between TELEHUB COMMUNICATIONS CORPORATION, a Nevada corporation, whose address
is 1425 Tri-State Parkway, Gurnee, Illinois 60031 ("TELEHUB"), and DONALD H.
SLEDGE, an individual residing at 27 Cherry Hill Court, Alamo, California
("Executive").
R E C I T A L S
WHEREAS, TELEHUB desires to hire and employ Executive as its Chief
Executive Officer, and potentially also as an officer for TELEHUB's affiliates.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
1. EMPLOYMENT. TELEHUB, its subsidiaries and affiliate corporations
(collectively, the "Company") agree to employ Executive and Executive hereby
agrees to be employed by the Company on a full-time basis. Executive represents
and warrants that the execution of this Agreement and his performance under
this Agreement does not breach any other agreement and does not require the
consent of any other person.
2. DUTIES. Executive shall be employed as TELEHUB's Chief Executive
Officer and shall perform the duties, bear the responsibilities commensurate
with his position and serve the Company faithfully and to the best of his
ability, under the direction of the Board (for purposes of this Agreement, the
term "Board" shall mean the Board of Directors of the ultimate parent
corporation in the Company). In addition, the Executive will hold, without
additional compensation, such other offices and directorships for the Company
to which he may be appointed or elected from time-to-time. In its sole
discretion the Company may assign Executive to a position of lesser
responsibility, subject to Executive's right of termination under Section 8.6
below. Executive's conduct must promote the best interests of the Company and
must not discredit the Company, its products or services.
3. EXCLUSIVITY. Executive shall devote substantially his full business
time, efforts, attention, skill and energy to the Company's business. Executive
shall disclose all other business activities to the Board and Executive shall
not engage in any other business activity that requires significant personal
services by Executive. After notifying the Board, Executive may take reasonable
personal time for:
3.1. personal investments that do not require significant services by
Executive;
3.2. participation in volunteer or charitable activities;
3.3. participation in industry-related organizations;
3.4. serving as a Director in Becker Group Companies;
3.5. with prior Board approval, serving as a Director for other
companies; and
3.6. activities approved in advance by the Board; except that
Executive shall cease any such outside activity if the Board determines that
such activity will interfere or conflict with the Company's interests.
4. CONFLICTS OF INTEREST. Executive shall not engage in any activity
that, in the Board's judgment, may interfere or conflict with the proper
performance of Executive's duties or the Company's interest. If Executive has
any interest in a proposed transaction involving the Company, that interest
must be fully disclosed to the Board and the disinterested Board members must
approve the transaction.
<PAGE> 2
5. CONFIDENTIALITY. The relationship between the Company and Executive is
one of confidence and trust. Executive agrees that the provisions of this
Section are fair and reasonable because as a result of his employment by the
Company he will have access to proprietary Company information and that such
information is a highly-valued asset of the Company.
5.1. CONFIDENTIAL INFORMATION. The term "Confidential Information"
means all information relating to the Company, its affiliates, customers
and suppliers considered by the Company to be confidential, including,
without limitation:
5.1.1. the Company's plans, products, processes and personnel;
5.1.2. the nature of the Company's services and any area where such
services are performed or planned to be performed;
5.1.3. research, development, manufacturing, purchasing, and
engineering;
5.1.4. markets, marketing strategies, customer lists and prospect
lists;
5.1.5. merchandising, selling, pricing, tariffs or contractual terms,
5.1.6. inventions, discoveries, concepts and ideas, whether patentable
or not, processes, methods, formulas, and techniques, trade
secrets, related improvements and knowledge;
5.1.7. financial and accounting information;
5.1.8. the Company's technology, expertise or business; and
5.1.9. any component of Confidential Information or anything derived
from Confidential Information.
The Company's determination that specific information constitutes
Confidential Information shall be binding, except for information already in
the public domain other than by Executive's Act and except for information
which is no longer a trade secret as defined by the Uniform Trade Secrets Act.
5.2. Non-disclosure. Executive agrees that he shall at no time, whether
during his employment or at any time thereafter, disclose or use any
Confidential Information for any purpose other than the conduct of the
Company's business. Upon the breach or threatened breach of this covenant by
Executive, the Company shall be entitled without notice to obtain relief
pursuant to Section 11 below.
5.3. Notice to Company Executive will immediately notify the Company if
he learns that Confidential Information has been disclosed or is about to be
disclosed, whether by Executive's acts, acts of third parties, law, regulation
or court order. Executive will cooperate with the Company's efforts to prevent
or limit disclosure of Confidential Information.
5.4. Ownership. Any Confidential Information that is directly
originated, developed or perfected to any degree by Executive during his
employment by the Company shall be and remain the sole property of the Company
and shall be deemed trade secrets of the Company. To the extent that any
Confidential Information constitutes an original work of authorship by
Executive which is protectable by copyright, Executive acknowledges that such
work is a "work for hire" as defined by the U.S. Copyright Act (17 U.S.C.
Section 101 et seq.).
5.5. Assignment. The Executive hereby assigns to the Company all of his
intellectual property rights (including copyrights, patents, and trademarks)
that may exist due to his direct involvement in the Company.
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5.6. Return of Confidential Information. Upon termination of Executive's
employment or upon request by the Board, Executive or his legal representative
shall deliver to the Company all original and duplicates and/or copies of all
documents, records, notebooks, computer records or media, and similar materials
containing Confidential Information then in his possession.
5.7. Further Assurances. Executive agrees to execute such separate and
further confidentiality agreements embodying and enlarging upon the provisions
of this Section as the Company may reasonably request.
6. COMPENSATION AND BENEFITS. In consideration of the services to be
rendered pursuant to this Agreement, Executive shall receive the following
compensation and benefits during the term of his employment:
6.1. Salary. The Company shall pay Executive an annual base salary,
payable semimonthly in arrears. The annual base salary during the term hereof
shall be $175,000, the Company will also pay Executive an incentive bonus up to
50% of Executive's base salary per year at the discretion of the Board. The
Board shall annually review the amounts of the base salary and bonus.
6.2. Benefits. The Company shall provide Executive with the benefits of
such insurance plans, hospitalization plans, retirement plans and other
employee benefits generally provided to executive employees of the Company and
for which Executive may be eligible under the terms and conditions thereof. The
Company shall also reimburse Executive for the annual premiums incurred by
Executive for Disability and Life insurance policies, which are in force on the
date of this Agreement.
6.3. Stock Options. The Company intends to create stock option plans
for directors, officers and employees. Executive will be eligible to
receive stock options in accordance with the terms of such plans.
6.4. Annual Leave. Executive shall be entitled to vacations, sick
leaves, personal days and other time off in accordance with the Company's
policies in effect for officers and executive employees of the Company.
6.5. Reimbursement of Commuting and Office Expenses. The Executive
currently does not reside in the vicinity of the Company's Illinois business
office. Accordingly, the Executive shall commute to the Company's business
offices in Illinois and California. The Company shall promptly reimburse the
Executive for:
6.5.1. all travel expenses, hotel accommodations and car rentals
directly incurred when commuting to the Company's Illinois
business office; and
6.5.2. Executive's actual secretarial costs and other office operating
expenses to the extent directly attributable to the Company's
business;
after receiving an itemized account of such expenses with reasonable
supporting documentation.
6.6. Car Allowance. the Company shall pay Executive a car allowance of
$900 per month, in addition to Executive's other compensation.
6.7. Reimbursement of Expenses. Upon receipt of an itemized accounting
of such expenses with reasonable supporting documentation, the Company shall
reimburse Executive for all reasonable and necessary out-of-pocket expenses
incurred by Executive in connection with the
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business of the Company and in performance of Executive's duties under this
Agreement.
7. DURATION. Executive's employment shall commence on the date of this
Agreement and continue until terminated in accordance with Section 8. The
initial term of Employee's employment shall be five years ("Initial Term"), with
renewal terms of one year. After termination of Executive's employment, the
applicable provisions of Sections 5,8, and 9 shall remain in full force and
effect until the time specified in each such section.
8. TERMINATION. Executive's employment may be terminated as follows:
8.1. Expiration of Term. Upon written notice by either party delivered
at least 30 days before the expiration of the Initial Term or renewal term
(collectively, "Term"), Executive's employment will terminate at the expiration
of the Term.
8.2. Death. If Executive dies during the Term of his employment, the
Company shall pay his estate the compensation that would otherwise be payable to
him for the month in which his death occurs, and his employment shall be deemed
terminated on the last day of such month. The Company also shall pay Executive's
estate the bonus specified in Section 6.1; if the Executive dies during the
first year of employment, the bonus will be 50% of Executive's annual salary,
otherwise the bonus will be the amount of the previous year's bonus pro rated
for the portion of the year served.
8.3. Disability. If the Executive is prevented from performing his
employment duties by reason of illness or incapacity for 180 days in any 365
day period, the Company may terminate his employment upon 60 days written
notice to Executive or his or her duly appointed legal representative.
8.4. Change of Control. Either party may terminate Executive's
employment upon at least 30 days written notice upon the occurrence of any of
the following events:
8.4.1. sale by the Company of substantially all of its assets to a
single purchaser or associated group of purchasers who are not
affiliates of the Company;
8.4.2. Sale, exchange or other disposition in one transaction of
35% or more of the outstanding voting stock of the Company to
persons, firms or corporations who are not affiliates of the
Company;
8.4.3. merger or consolidation of the Company in a transaction not
involving an affiliate of the Company in which the shareholders of
the Company receive less than 50% of the outstanding voting stock
of the new continuing corporation or successor entity;
8.4.4. a bona fide decision by the Company to terminate its
business and liquidate its assets (but only if such liquidation is
not part of a plan to carry on the Company's business through its
shareholders).
For the purpose of this Agreement, the term "affiliate" means a person, firm or
corporation that directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control of the Company.
8.5. Cause. The Company may immediately terminate Executive's
employment at any time for:
8.5.1. gross negligence or non-performance by Executive of any
material duties as an executive officer of the Company which
continues after 60 days written notice specifying such negligence
or non-performance; or
8.5.2. the commission of any theft, fraud, embezzlement or similar
crime
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involving the commission of any felony, for acts of dishonesty
or moral turpitude, for intentional violations of the securities
laws or for a material breach of any provision of this
Agreement.
8.6. Demotion. The Executive may terminate his employment upon 30 days
written notice if the Company assigns the Executive to a position of lower
responsibility and Executive rejects such assignment.
8.7. Discretion. Either party, in its sole discretion, may terminate
Executive's employment at any time upon 30 days prior written notice.
8.8. Severance. If Executive's employment is terminated during the
Initial Term pursuant to subsections 8.4 or 8.6, or the Company terminates
Executive's employment pursuant to subsection 8.7, the Company shall pay
Executive a Termination Fee equal to twice Executive's then-current annual
salary, plus benefits plus the bonus specified in Section 6.1; if employment is
terminated during the first year of employment, the bonus will be 50% of
Executive's annual salary, otherwise the bonus will be the amount of the
previous year's bonus pro rated for the portion of the year served.
9. COVENANT NOT TO COMPETE. Since Executive will be a key employee of
the Company, Executive shall have access to Confidential Information, and the
national scope of the Company's proposed business, Employee agrees that the
restrictions on his future activities contained in this Section are fair,
reasonable and necessary.
9.1. Covenant Period The covenants contained in this Section shall
continue until one year after the later of:
9.1.1. termination of Executive's employment;
9.1.2. the Company receives revenue from wholesale long
distance services;
9.1.3. the Company receives revenue from Open Access
Mediation Services; or
9.1.4. the Company becomes subject to the reporting
requirements of sections 12 or 15(d) of the federal Securities
Exchange Act of 1934.
(the "Covenant Period"). Subsections 9.1.2, 9.1.3, and 9.1.4 do not
apply if Hey have not occurred within one year after termination of Executive's
employment.
9.2. Restrictions on Future Employment. Until the Covenant Period
expires, Executive shall not, directly or indirectly, own,
manage, operate, control, be employed by, assist or participate
in the ownership, management, operation or control of a business
operating in the United States that is engaged in the following
activities:
9.2.1. the provision of management, billing and control
services using Advanced Intelligent Network technologies;
9.2.2. the provision of wholesale long distance services using
Asynchronous Transfer Mode techniques; or
9.2.3. the provision of Open Access Mediation Services. This
restriction applies whether or not the Company is authorized to
provide and actually provides such services during of
Executive's employment by the Company.
9.3. Non-solicitation. Executive shall not directly or indirectly:
9.3.1. induce any employee of the Company to leave the employ
of the Company;
9.3.2. interfere with the relationship between the Company and
any employee;
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9.3.3. hire any Company employee to work for any organization of
which Executive is an officer, director, employee,
consultant, independent contractor or owner of an equity or
other financial interest; or
9.3.4. solicit or service any actual or prospective supplier,
client, customer of the Company who was solicited or
serviced during Executive's employment;
9.3.5. interfere or attempt to interfere with any transaction
involving the Company; until the Covenant Period expires.
10. SECURITIES MATTERS. Since the Executive will have access to
Confidential Information, his ability to engage in securities transactions
(including securities issued by the Company and by others) will be limited.
Executive agrees to:
10.1. not engage in any transactions that violate the securities laws;
10.2. file all reports required by securities regulatory authorities;
10.3. provide information about securities transactions when requested
by the Company;
10.4. follow written Company policies concerning securities
transactions;
10.5. execute any "lock-up" agreements or other restrictions on
transactions which were approved by the Board;
10.6. comply with securities law requirements for all transactions.
While Executive may request Board permission for proposed securities
transactions, Executive is still responsible for compliance with legal
requirements.
11. INJUNCTIVE RELIEF. Upon a material breach or threatened material
breach by Executive of any of the provisions of Sections 3, 4, 5, 9 and 10 of
this Agreement, the Company shall be entitled to an injunction restraining
Executive from such breach, together with any other relief or remedy available,
for such breach or threatened breach, including the recovery of damages.
Nothing herein shall be construed as prohibiting the Company from pursuing any
other remedies for such breach or threatened breach. If the Company takes legal
action to enforce the provisions of this Agreement or to enjoin Executive from
violating this Agreement, the prevailing party, as part of its damages, shall be
entitled to recover its legal fees and expenses incurred in such action from
the losing party.
12. SEVERABILITY. It is the desire and intent of the parties that the
provisions of this Agreement shall be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, if any particular provision or
portion of this Agreement shall be adjudicated to be invalid or unenforceable,
this Agreement shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of such Section in the particular jurisdiction in
which such adjudication is made.
13. NOTICES. All communications, requests, consents and other notices
under this Agreement shall be given in writing and delivered by facsimile,
courier, registered or certified mail (postage prepaid) to the receiving
party at the address set forth above or the recipient's last known address.
Notice shall be deemed given on the date of delivery as shown by the facsimile
confirmation or delivery receipt.
14. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Nevada.
15. ASSIGNMENT. The Company may assign its rights and obligations
under this Agreement to
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any successor corporation or, subject to Section 8.4, to any acquirer of
substantially all of the business of the Company, and all covenants and
agreements hereunder shall inure to the benefit of and be enforceable by or
against any such assignee. Neither this Agreement nor any rights or duties
hereunder may be assigned or delegated by Executive.
16. NO WAIVER. A waiver by the Company of a breach of any provision of
this Agreement by Executive shall not operate or be construed as a waiver of
any subsequent or other breach by Executive.
17. AMENDMENTS. No provision of this Agreement shall be altered, amended,
revoked or waived, except by an instrument in writing, signed by the Company
and Executive.
18. BINDING EJECT. Except as otherwise provided herein, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto
and their respective legal representatives, heirs, successors and assigns.
19. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
20. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and
understanding of the parties and supersedes all prior understandings,
agreements or representations by or between the parties, whether written or
oral.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY: TELEHUB COMMUNICATIONS CORPORATION,
a Nevada corporation
By: /s/ William W. Becker
----------------------------------
William W. Becker, Chairman
EXECUTIVE: /s/ Donald H. Sledge
-------------------------------------
DONALD H. SLEDGE
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EXHIBIT 10.11
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT made January 2, 1997, by and between TELEHUB
COMMUNICATIONS CORPORATION, a Nevada corporation, whose address is 1375
Tri-State Parkway, Gurnee, Illinois 60031, and MICHAEL G. McLAUGHLIN,
an individual residing at 2501 West Aspen Drive, McHenry, Illinois 60050
("Executive").
RECITALS
WHEREAS, TELEHUB desires to hire and employ Executive as its Chief
Operating Officer, and potentially also as an officer for TELEHUB affiliates.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
1. EMPLOYMENT. TELEHUB, its subsidiaries and affiliate corporations
(collectively, the "Company") agree to employ Executive and Executive hereby
agrees to be employed by the Company on a full-time basis. Executive represents
and warrants that the execution of this Agreement and his performance under
this Agreement does not breach any other agreement and does not require the
consent of any other person.
2. DUTIES. Executive shall be employed as TELEHUB's Chief Operating
Officer and shall perform the duties, bear the responsibilities commensurate
with his position and serve the Company faithfully and to the best of his
ability, under the direction of the Board (for purposes of this Agreement, the
term "Board" shall mean the Board of Directors of the ultimate parent
corporation in the Company) and Chief Executive Officer. In addition, the
Executive will hold, without additional compensation, such other offices and
directorships for the Company to which he may be appointed or elected from
time-to-time. In its sole discretion the Company may assign Executive to a
position of lesser responsibility, subject to Executive's right of termination
under Section 8.6 below. Executive's conduct must promote the best interests of
the Company and must not discredit the Company, its products or services.
3. EXCLUSIVITY. Executive shall devote substantially his full business
time, efforts, attention, skill and energy to the Company's business. Executive
shall disclose all other business activities to the Board and Executive shall
not engage in any other business activity that requires significant personal
services by Executive. After notifying the Board, Executive may take reasonable
personal time for:
3.1. personal investments that do not require significant services by
Executive;
3.2. participation in volunteer or charitable activities;
3.3. participation in industry-related organizations;
3.4. serving as a Director in Becker Group Companies;
3.5. with prior Board approval, serving as a Director for other
companies; and
3.6. activities approved in advance by the Board; except that Executive
shall cease any such outside activity if the Board determines that such
activity will interfere or conflict with the Company's interests.
4. CONFLICTS OF INTERIM. Executive shall not engage in any activity
that, in the Board's judgment, may interfere or conflict with the proper
performance of Executive's duties or the Company's interest. If Executive has
any interest in a proposed transaction involving the Company, that interest
must be fully disclosed to the Board and the disinterested Board members
<PAGE> 2
must approve the transaction.
5. CONFIDENTIALITY. The relationship between the Company and Executive is
one of confidence and trust. Executive agrees that the provisions of this
Section are fair and reasonable because as a result of his employment by
the Company he will have access to proprietary Company information and that
such information is a highly-valued asset of the Company.
5.1. Confidential Information. The term "Confidential Information"
means all information relating to the Company, its affiliate's customers
and suppliers considered by the Company to be confidential including,
without limitation:
5.1.1. the Company's plans, products, processes and personnel;
5.1.2. the nature of the Company's services and any area where such
services are performed or planned to be performed;
5.1.3. research, development, manufacturing, purchasing, and
engineering;
5.1.4. markets, marketing strategies, customer lists and prospect
lists;
5.1.5. merchandising, selling, pricing, tariffs or contractual terms,
5.1.6. inventions, discoveries, concepts and ideas, whether patentable
or not, processes, methods, formulas, and techniques, trade
secrets, related improvements and knowledge;
5.1.7. financial and accounting information;
5.1.8. the Company's technology, expertise or business; and
5.1.9. any component of Confidential Information or anything derived
from Confidential Information.
The Company's determination that specific information constitutes
Confidential Information shall be binding, except for information already in
the public domain other than by Executive's Act and except for information
which is no longer a trade secret as defined by the Uniform Trade Secrets Act.
5.2. Non-disclosure. Executive agrees that he shall at no time, whether
during his employment or at any time thereafter, disclose or use any
Confidential Information for any purpose other than the conduct of the
Company's business. Upon the breach or threatened breach of this covenant by
Executive, the Company shall be entitled without notice to obtain relief
pursuant to Section 11 below.
5.3. Notice to Company. Executive will immediately notify the Company if
he learns that Confidential Information has been disclosed or is about to be
disclosed, whether by Executive's acts, acts of third parties, law, regulation
or court order. Executive will cooperate with the Company's efforts to prevent
or limit disclosure of Confidential Information.
5.4. Ownership. Any Confidential Information that is directly
originated, developed or perfected to any degree by Executive during his
employment by the Company shall be and remain the sole property of the Company
and shall be deemed trade secrets of the Company. To the extent that any
Confidential Information constitutes an original work of authorship by
Executive which is protectable by copyright, Executive acknowledges that such
work is a "work for hire" as defined by the U.S. Copyright Act (17 U.S.C.
Section 101 et seq.).
5.5. Assignment. The Executive hereby assigns to the Company all of his
intellectual property rights (including copyrights, patents, and trademarks)
that may exist due to his direct involvement in the Company.
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5.6. Return Confidential Information. Upon termination of Executive's
employment or upon request by the Board, Executive or his legal representative
shall deliver to the Company all original and duplicates and/or copies of all
documents, records, notebooks, computer records or media, and similar materials
containing Confidential Information then in his possession.
5.7. Further Assurances. Executive agrees to execute such separate and
further confidentiality agreements embodying and enlarging upon the provisions
of this Section as the Company may reasonably request
6. COMPENSATION AND BENEFITS. In consideration of the services to be
rendered pursuant to this Agreement, Executive shall receive the following
compensation and benefits during the term of his employment
6.1. Salary. The Company shall pay Executive an annual base salary, payable
semimonthly in arrears. The annual base salary during the term hereof shall be
$175,000, the Company will also pay Executive an incentive bonus up to 50% of
Executive's base salary per year at the discretion of the Board. The Board shall
annually review the amounts of the base salary and bonus.
6.2. Benefits. The Company shall provide Executive with the benefits of
such insurance plans, hospitalization plans, retirement plans and other employee
benefits generally provided to executive employees of the Company and for which
Executive may be eligible under the terms and conditions thereof. The Company
shall also reimburse Executive for the annual premiums incurred by Executive for
Disability and $1,000,000 Term Life insurance policies, on terms approved by the
Board and to become effective within six months.
6.3. Stock Options. The Company intends to create stock option plans
for directors, officers and employees. Executive will be eligible to receive
stock options in accordance with the terms of such plans.
6.4. Annual Leave. Executive shall be entitled to vacations, sick
leaves, personal days and other time off in accordance with the Company's
policies in effect for officers and executive employees of the Company.
6.5. Reimbursement of Commuting and Office Expenses. The Executive
currently does not reside in the vicinity of the Company's California business
office. Accordingly, the Executive shall commute to the Company's business
offices in Illinois and California. The Company shall promptly reimburse the
Executive for
6.5.1. all travel expenses, hotel accommodations and car rentals
directly incurred when commuting to the Company's Illinois
business office; and
6.5.2. Executive's actual secretarial costs and other office operating
expenses to the extent directly attributable to the Company's
business; after receiving an itemized account of such expenses
with reasonable supporting documentation.
6.6. Car Allowance. the Company shall pay Executive a car allowance of
$900 per month, in addition to Executive's other compensation.
6.7. Reimbursement of Expenses. Upon receipt of an itemized accounting
of such expenses with reasonable supporting documentation, the Company shall
reimburse Executive for all
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reasonable and necessary out-of-pocket expenses incurred by Executive in
connection with the business of the Company and in performance of Executive's
duties under this Agreement.
7. DURATION. EXECUTIVE employment shall commence on the date of this
Agreement and continue until terminated in accordance with Section 8. The
initial term of Employee's employment shall be five years ("Initial Term"), with
renewal terms of one year. After termination of Executive's employment, the
applicable provisions of Sections 5,8, and 9 shall remain in full force and
effect until the time specified in each such section.
8. TERMINATION. Executive's employment may be terminated as follows:
8.1. Expiration of Term. Upon written notice by either party delivered
at least 30 days before the expiration of the Initial Term or renewal term
(collectively, "Term"), Executive's employment will terminate at the expiration
of the Term.
8.2. Death. If Executive dies during the Term of his employment, the
Company shall pay his estate the compensation that would otherwise be payable
to him for the month in which his death occurs, and his employment shall be
deemed terminated on the last day of such month. The Company also shall pay
Executive's estate the bonus specified in Section 6.1; if the Executive dies
during the first year of employment, the bonus will be 50% of Executive's
annual salary, otherwise the bonus will be the amount of the previous year's
bonus pro rated for the portion of the year served.
8.3. Disability. If the Executive is prevented from performing his
employment duties by reason of illness or incapacity for 180 days in any 365
day period, the Company may terminate his employment upon 60 days written
notice to Executive or his or her duly appointed legal representative.
8.4. Change of Control. Either party may terminate Executive's
employment upon at least 30 days written notice upon the occurrence of any of
the following events:
8.4.1. sale by the Company of substantially all of its assets to a
single purchaser or associated group of purchasers who are not
affiliates of the Company;
8.4.2. Sale, exchange or other disposition in one transaction of 35%
or more of the outstanding voting stock of the Company to
persons, firms or corporations who are not affiliates of the
Company;
8.4.3. merger or consolidation of the Company in a transaction not
involving an affiliate of the Company in which the shareholders
of the Company receive less than 50% of the outstanding voting
stock of the new continuing corporation or successor entity;
8.4.4. a bona fide decision by the Company to terminate its business
and liquidate its assets (but only if such liquidation
is not part of a plan to carry on the Company's business through
its shareholders).
For the purpose of this Agreement, the term "affiliate" means a person, firm or
corporation that directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control of the Company.
8.5. Cause. The Company may immediately terminate Executive's
employment at any time for:
8.5.1. gross negligence or non-performance by Executive of any material
duties as an executive officer of the Company which continues
after 60 days written notice specifying such negligence or
non-performance; or
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8.5.2. the commission of any theft, fraud, embezzlement or similar
crime involving the commission of any felony, for acts of
dishonesty or moral turpitude, for intentional violations of
the securities laws or for a material breach of any provision of
this Agreement.
8.6. Demotion. The Executive may terminate his employment upon 30 days
written notice if the Company assigns the Executive to a position of lower
responsibility and Executive rejects such assignment.
8.7. Discretion. Either party, in its sole discretion, may terminate
Executive's employment at any time upon 30 days prior written notice.
8.8. Severance. If Executive's employment is terminated during the
Initial Term pursuant to subsections 8.4 or 8.6, or the Company terminates
Executive's employment pursuant to subsection 8.7, the Company shall pay
Executive a Termination Fee equal to twice Executive's then-current annual
salary, plus benefits plus the bonus specified in Section 6.1; if employment is
terminated during the first year of employment, the bonus will be 50% of
Executive's annual salary, otherwise the bonus will be the amount of the
previous year's bonus pro rated for the portion of the year served.
9. COVENANT NOT TO COMPETE. Since Executive will be a key employee of
the Company, Executive shall have access to Confidential Information, and the
national scope of the Company's proposed business, Employee agrees that the
restrictions on his future activities contained in this Section are fair,
reasonable and necessary.
9.1. Covenant Period. The covenants contained in this Section shall
continue until one year after the later of:
9.1.1. termination of Executive's employment;
9.1.2. the Company receives revenue from wholesale long distance
services;
9.1.3. the Company receives revenue from Open Access Mediation
Services; or
9.1.4. the Company becomes subject to the reporting requirements of
sections 12 or 15(d) of the federal Securities Exchange Act
of 1934.
(the "Covenant Periods"). Subsections 9.1.2, 9.1.3, and 9.1.4 do not
apply if they have not occurred within one year after termination of
Executive's employment.
9.2. Restrictions on Future Employment. Until the Covenant Period
expires, Executive shall not, directly or indirectly, own, manage, operate,
control, be employed by, assist or participate in the ownership, management,
operation or control of a business operating in the United States that is
engaged in the following activities:
9.2.1. the provision of management, billing and control services
using Advanced Intelligent Network technologies;
9.2.2. the provision of wholesale long distance services using
Asynchronous Transfer Mode techniques; or
9.2.3. the provision of Open Access Mediation Services.
This restriction applies whether or not the Company is authorized to provide and
actually provides such services during of Executive's employment by the Company.
9.3. Non-solicitation. Executive shall not directly or indirectly:
9.3.1 induce any employee of the Company to leave the employ of the
Company;
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9.3.2. interfere with the relationship between the Company and
any employee;
9.3.3. hire any Company employee to work for any organization of
which Executive is an officer, director, employee,
consultant, independent contractor or owner of an equity or
other financial interest; or
9.3.4. solicit or service any actual or prospective supplier, client,
customer of the Company who was solicited or serviced
during Executive's employment;
9.3.5. interfere or attempt to interfere with transaction involving
the Company; until the Covenant Period expires.
10. SECURITIES MATTERS. Since the Executive will have access to
Confidential Information, his ability to engage in securities transactions
(including securities issued by the Company and by others) will be limited.
Executive agrees to:
10.1. not engage in any transactions that violate the securities
laws;
10.2. file all reports required by securities regulatory authorities;
10.3. provide information about securities transactions when
requested by the Company;
10.4. follow written Company policies concerning securities
transactions;
10.5. execute any "lock-up" agreements or other restrictions on
transactions which were approved by the Board;
10.6. comply with securities law requirements for all
transactions. While Executive may request Board permission for proposed
securities transactions, Executive is still responsible for compliance with
legal requirements.
11. INJUNCTIVE RELIEF. Upon a material breach or threatened material breach
by Executive of any of the provisions of Sections 3, 4, 5, 9 and 10 of this
Agreement, the Company shall be entitled to an injunction restraining Executive
from such breach, together with any other relief or remedy available, for such
breach or threatened breach, including the recovery of damages. Nothing herein
shall be construed as prohibiting the Company from pursuing any other remedies
for such breach or threatened breach. If the Company takes legal action to
enforce the provisions of this Agreement or to enjoin Executive from violating
this Agreement, the prevailing party, as part of its damages, shall be entitled
to recover its legal fees and expenses incurred in such action from the losing
party.
12. SEVERABILITY. It is the desire and intent of the parties that the
provisions of this Agreement shall be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, if any particular provision or
portion of this Agreement shall be adjudicated to be invalid or unenforceable,
this Agreement shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of such Section in the particular jurisdiction in
which such adjudication is made.
13. NOTICES. All communications, requests, consents and other notices
under this Agreement shall be given in writing and delivered by facsimile,
courier, registered or certified mail (postage prepaid) to the receiving party
at the address set forth above or the recipient's last known address. Notice
shall be deemed given on the date of delivery as shown by the facsimile
confirmation or delivery receipt.
14. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Nevada
6
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15. ASSIGNMENT. The Company may assign its rights and obligations under
this Agreement to any successor corporation or, subject to Section 8.4, to any
acquirer of substantially all of the business of the Company, and all covenants
and agreements hereunder shall inure to the benefit of and be enforceable by or
against any such assignee. Neither this Agreement nor any rights or duties
hereunder may be assigned or delegated by Executive.
16. NO WAIVER. A waiver by the Company of a breach of any provision of
this Agreement by Executive shall not operate or be construed as a waiver of any
subsequent or other breach by Executive.
17. AMENDMENTS. No provision of this Agreement shall be altered,
amended, revoked or waived, except by an instrument in writing, signed by the
Company and Executive.
18. BINDING EFFECT. Except as otherwise provided herein, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective legal representatives, heirs, successors and assigns.
19. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
20. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
and understanding of the parties and supersedes all prior understandings,
agreements or representations by or between the parties, whether written or
oral.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY: TELEHUB COMMUNICATIONS CORPORATION,
a Nevada corporation
By: /s/ Donald H. Sledge
------------------------------------
Donald H. Sledge, Vice Chairman
EXECUTIVE: /s/ Michael G. McLaughlin
---------------------------------------
Michael G. McLaughlin
7
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EXHIBIT 10.12
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("AGREEMENT") is entered into by and between,
TeleHub Communications Corporation, a Nevada corporation, with offices at 2033
North Main Street, Suite 340, Walnut Creek, California 94596 and 1375 Tri-State
Parkway, Suite 250, Gurnee, Illinois 60031 (the "EMPLOYER"), and Richard M.
Harmon, an individual residing at 610 Lochmoor Drive, Danville, CA 94526
("EXECUTIVE"). This Agreement is executed on the date last written at the
signature blocks below and supercedes the employment agreement entered into by
the parties dated as of January 2, 1997. The effective date of this Agreement is
May 4, 1998 ( "EFFECTIVE DATE ").
R E C I T A L S
WHEREAS, Employer desires to hire and employ Executive.
WHEREAS, Executive desires to become an employee of Employer;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
1. EMPLOYMENT. Employer, its subsidiaries and Affiliates (collectively, the
"COMPANY") agree to employ Executive, and Executive hereby agrees to be employed
by the Company on a full-time basis. For the purpose of this Agreement, the term
"AFFILIATE" means a person, firm or corporation that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control of Employer. Executive represents and warrants that the execution
of this Agreement and his performance under this Agreement does not breach any
other agreement and does not require the consent of any other person.
2. DUTIES. Executive shall perform the duties as assigned by the Company from
time to time and shall serve the Company faithfully and to the best of
Executive's ability. The Executive will hold, without additional compensation,
such other positions for the Company to which Executive may be appointed or
elected from time to time. In its sole discretion the Company may, from time to
time, change Executive's title or responsibility. Executive's conduct must
promote the best interests of the Company and must not discredit the Company,
its products or services.
3. EXCLUSIVITY. Executive shall devote substantially his full business time,
efforts, attention, skill and energy to the Company's business. Executive shall
disclose all other business activities to the Company and Executive shall not
engage in any other business activity that requires significant personal
services by Executive. After notifying the Company, Executive may take
reasonable personal time for:
3.1. personal investments that do not require significant services by
Executive;
3.2. participation in volunteer or charitable activities;
3.3. participation in industry-related organizations;
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3.4. with prior Board approval, serving as a Director for other companies;
and
3.5. activities approved in advance by the Board;
except that Executive shall cease any such outside activity if the Company
determines that such activity will interfere or conflict with the Company's
interests.
4. CONFLICTS OF INTEREST. Executive shall not engage in any activity that, in
the Company's judgment, may interfere or conflict with the proper performance of
Executive's duties or the Company's interest. If Executive has any interest in a
proposed transaction involving the Company, that interest must be fully
disclosed to the Company and the Company must approve of the transaction.
5. INVENTIONS AND CONFIDENTIALITY. Executive acknowledges that TeleHub is in
a unique, world-wide business and has expended significant amounts to develop
its proprietary products and services and, by reason of Executive's position
with the Company, Executive will have access to Confidential Information,
proprietary information and other intellectual property of the Company. As a
condition to the Executive's employment with the Company, the Executive agrees
to and has executed and delivered to the Company, the Invention Assignment and
Confidentiality Covenant ("COVENANT"), the terms of which are hereby
incorporated into and made part of this Agreement. Executive agrees that the
restrictions contained in the Covenant are fair, reasonable and necessary.
6. COMPENSATION AND BENEFITS. In consideration of the services to be rendered
pursuant to this Agreement, Executive shall receive the following compensation
and benefits during the term of his employment:
6.1. Salary. The Company shall pay Executive an annual base salary,
payable semimonthly in arrears. The annual base salary during the term hereof
shall be $165,000.00 ("SALARY").
6.2. Bonus. The Company will pay Executive an incentive bonus up to fifty
percent (50%) of Executive's base Salary per year ("BONUS") based upon
Executive's accomplishments of objectives that are mutually defined and agreed
upon between, and documented by, Executive and the Company. The Company shall
pay Executive's Bonus ninety (90) calendar days after the close of the Company's
fiscal year. The Company's Board of Directors, with the advice of Executive's
supervisor, shall annually review the amounts of Executive's base Salary and
Bonus.
6.3. Benefits. The Company may provide Executive with such insurance
plans, hospitalization plans, retirement plans and other executive benefits that
are generally provided to executive employees of the Company and for which
Executive is eligible under the terms and conditions thereof.
6.4. Reimbursement of Expenses. Upon receipt of an itemized accounting of
such expenses with acceptable supporting documentation, the Company shall
promptly reimburse Executive for all reasonable and necessary out-of-pocket
expenses incurred by Executive in connection with the business of the Company
and in performance of Executive's duties under this Agreement in accordance with
Company policy.
6.5. Car Allowance. The Company shall pay Executive a car allowance of
$450.00 per month, in addition to Executive's other compensation.
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7. DURATION. Executive's employment shall commence on the Effective Date and
continue until terminated in accordance with Section 8. The initial term of
Executive's employment shall be four (4) years ("INITIAL TERM"), and shall be
automatically renewed for additional terms of one (1) year unless earlier
terminated pursuant to the terms of this Agreement. After termination of
Executive's employment, the applicable provisions of Sections 5 and 8 shall
remain in full force and effect until the time specified in each such section.
8. TERMINATION. Executive's employment may be terminated as follows:
8.1. Expiration of Term. Upon written notice by either party delivered at
least thirty (30) calendar days before the expiration of the Initial Term or
renewal term (collectively, "TERM"), Executive's employment will terminate at
the expiration of the then current Term.
8.2. Death. If Executive dies during the Term of his employment, the
Company shall pay his estate the compensation that would otherwise be payable to
him for the month in which his death occurs, and his employment shall be deemed
terminated on the last day of such month.
8.3. Cause. The Company may immediately terminate Executive's employment
at any time for:
8.3.1. non-performance or gross negligent performance by Executive
of any material duties which continues after fifteen (15)
calendar days' written notice specifying such non-performance
or gross negligent performance; or
8.3.2. the commission of any theft, fraud, embezzlement or similar
crime involving the commission of any felony; for acts of
dishonesty or moral turpitude; for violation of Company
policy or applicable local, state or federal laws or
regulations, including anti-discrimination laws or securities
laws; or for violation of other laws which causes material
economic damage to the Company or material damage to the
business reputation of the Company; or for a material breach
of any provision of this Agreement.
8.4. Demotion. The Executive may terminate Executive's employment with
the Company upon thirty (30) calendar days' written notice if the Company
assigns the Executive to a position of lower responsibility and Executive
rejects such assignment.
8.5. Discretion. Either party, in its sole discretion, may terminate
Executive's employment at any time upon thirty (30) calendar days' prior written
notice.
8.6. Change of Control. Either party may terminate Executive's employment
upon at least thirty (30) calendar days' written notice upon the occurrence of
any of the following events:
8.6.1. sale by the Company of substantially all of its assets to a
single purchaser or associated group of purchasers who are not
Affiliates of the Company;
8.6.2. sale, exchange or other disposition in one transaction of 35 %
or more of the outstanding voting stock of the Company to
persons, firms or corporations who are not Affiliates of the
Company;
8.6.3. merger or consolidation of the Company in a transaction not
involving an
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Affiliate of the Company in which the shareholders of the
Company receive less than 50 % of the outstanding voting stock
of the new continuing corporation or successor entity;
8.6.4. a bona fide decision by the Company to terminate its business
and liquidate its assets (but only if such liquidation is not
part of a plan to carry on the Company's business through its
shareholders).
8.7. Severance. If Executive's employment is terminated pursuant to
Subsection 8.4 or 8.6 hereof, or the Company terminates Executive's employment
pursuant to Subsection 8.5 hereof, the Company shall pay Executive a Termination
Fee equal to one-hundred percent (100%) of Executive's annual Salary, plus
Benefits, plus the Bonus specified in Section 6.2 hereof; if Executive's
employment is terminated during the first year of employment, the Bonus will be
fifty percent (50%) of Executive's annual Salary pro-rated for the portion of
the year served; otherwise the Bonus will be the amount of the previous year's
Bonus pro rated for the portion of the year served. Such Bonus shall be paid
within ninety (90) calendar days of Executive's termination. Payments to be made
pursuant to this paragraph shall only be made upon Executive's execution of a
standard release waiving all claims against the Company.
9. SECURITIES MATTERS. Since the Executive will have access to Confidential
Information. Executive's ability to engage in securities transactions (including
securities issued by the Company and by others) will be limited. Executive
agrees to:
9.1. not engage in any transactions that intentionally or knowingly
violate federal and state securities laws;
9.2. file all reports required by securities regulatory authorities;
9.3. provide information about securities transactions when requested by
the Company;
9.4. follow written Company policies concerning securities transactions;
9.5. execute any "lock-up" agreements or other restrictions on
transactions, which are fully consistent with requests of other
Executives, when requested by the Company; and
9.6. comply with securities law requirements for all transactions.
While Executive may request the Company's permission to engage in proposed
securities transactions, Executive is still responsible for compliance with
applicable legal requirements.
10. INJUNCTIVE RELIEF. Upon a material breach or threatened material breach by
Executive of any of the provisions of Sections 3, 4, 5 and 9 of this Agreement,
or any term of the Covenant, the Company shall be entitled to institute and
prosecute proceedings in any court of competent jurisdiction either in law or in
equity to obtain the specific performance thereof by Executive or to enjoin
Executive from violating the provisions hereof. Pending the outcome of any such
litigation, Company shall be entitled to obtain injunctive or other relief,
without bond. If the Company takes such legal action, the prevailing party, as
part of its damages, shall be entitled to recover its legal fees and expenses
incurred in such action from the other party.
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11. SEVERABILITY. It is the desire and intent of the parties that the
provisions of this Agreement shall be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, if any provision of this Agreement shall be
adjudicated to be invalid or unenforceable, then the remaining provisions will
continue in full force and effect.
12. NOTICES. All communications, requests, consents and other notices under
this Agreement shall be given in writing and delivered by courier, registered or
certified mail (postage prepaid), return receipt requested, and shall be
effective upon delivery. Notices to the Company shall be delivered to the
attention of the General Counsel at TeleHub's Walnut Creek address written
above, and Notices to Executive shall be delivered to the Executive's address
written above.
13. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by
California law, irrespective of choices of law principles. The parties agree
that any action brought pursuant to the terms of this Agreement shall be brought
in, and the parties hereby submit exclusively to, the personal jurisdiction and
venue of the state and federal courts in or presiding over Walnut Creek,
California.
14. ASSIGNMENT. The Company may assign its rights and obligations under this
Agreement to any successor corporation or to any acquirer of substantially all
of the business of the Company, and all covenants and agreements hereunder shall
inure to the benefit of and be enforceable by or against any such assignee.
Neither this Agreement nor any rights or duties hereunder may be assigned or
delegated by Executive.
15. NO WAIVER. A waiver by either party of any breach of this Agreement shall
not be a waiver for any preceding or succeeding breach. A waiver by either party
of any right under this Agreement shall not be construed as a waiver of any
other right.
16. AMENDMENTS. No provision of this Agreement shall be altered, amended,
revoked or waived, except by an instrument in writing, signed by the Company and
Executive.
17. BINDING EFFECT. Except as otherwise provided herein, this Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective legal representatives, heirs, successors and assigns.
18. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
19. ENTIRE AGREEMENT. This Agreement together with the Invention Assignment
and Confidentiality Covenant set forth the entire agreement and understanding of
the parties related to the subject matter of this Agreement and supersede all
prior and contemporaneous understandings, agreements or representations by or
between the parties, whether written or oral.
20. DISPUTES. Other than an action brought under Section 10, which may be
brought directly
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in any court of competent jurisdiction, any dispute or controversy arising
under, out of, in connection with or in relation to this Agreement or the
employment of Richard M. Harmon and the Company or the termination of employment
of Richard M. Harmon with the Company, including any claims under Tide VII of
the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the
Americans With Disabilities Act, the Family and Medical Leave Act, and any ocher
federal, state or local statute, regulation or ordinance perching to employment,
shall be finally determined and settled by arbitration. Arbitration shall be
initiated by one party making written demand upon the other party and
simultaneously filing the demand together with required fees in the office of
the American Arbitration Association in Walnut Creek, California. The
arbitration proceeding shall be conducted in Walnut Creek, California by a
single arbitrator in accordance with the National Rules for the Resolution of
Employment Disputes of the American Arbitration Association, except as otherwise
provided herein. Discovery shall be permitted to the extent ordered by the
arbitrator in compliance with and pursuant to the Employment Dispute Resolution
Rules of the American Arbitration Association. The arbitration award shall be a
final and binding determination of the dispute and shall be fully enforceable as
an arbitration award in any court having jurisdiction and venue over such
parties. The prevailing party (as determined by the arbitrator) shall be awarded
by the arbitrator such party's attorneys' fees, costs and expenses in connection
with such proceeding, in addition to any other relief that may be granted.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the "EFFECTIVE DATE" as stated above.
COMPANY: TeleHub Communications Corporation,
a Nevada corporation
Date: 5/4/98 Date: 5/4/98
---------- ----------
By: /s/ Donald H. Sledge By: /s/ Richard M. Harmon
--------------------------------- --------------------------------
Donald H. Sledge, President & CEO Richard M. Harmon
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AMENDMENT TO EMPLOYMENT AGREEMENT
The EMPLOYMENT AGREEMENT ("Agreement") entered into by and between TELEHUB
COMMUNICATIONS CORPORATION, a Nevada corporation, with offices at 2033 Main
Street, Suite 340, Walnut Creek, California 94596 and 1375 Tri-State Parkway,
Suite 250, Gurnee, Illinois 60031 (the "Employer"), and RICHARD M. HARMON, an
individual residing 610 Lochmoor Drive, Danville, California 94526
("Executive"), is hereby amended as of May 4, 1998 ("Effective Date").
R E C I T A L S
WHEREAS, Employer and Executive entered into an Employment Agreement dated
May 4, 1998 ("May 4 Employment Agreement") which provided for the employment of
Executive;
WHEREAS, Employer and Executive desire to amend the Employment Agreement to
add additional provisions;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement, the parties agree as follows:
1. The compensation and benefits provision of the May 4 Employment
Agreement dated May 4, l998 is amended to add Section 6.6, 6.7 and 6.8 as
follows:
6.6. Stock Options. The Company has created stock option plans for
directors, officers and employees. Executive will be eligible to
receive stock options in accordance with the terms of such plans.
6.7. Mortgage. The Company agrees to loan up to Four Hundred
Thousand Dollars ($400,000.00) for the purchase of a home in
Illinois. The loan will be for a period of seven (7) years, and will
be secured by a deed of trust on Executive's home. Interest will
accrue on the loan for the first three years. Therefore, principal
and interest will be amortized monthly starting the fourth year from
the date of execution of the loan with the balance due at the end of
the seventh year from the date of execution of the loan.
6.8. Club Membership. The Company shall pay reasonable initial
membership fee not to exceed Fifty Thousand Dollars U.S. (U.S.
$50,000.00) for Executive in a club of Executive's.
AMENDMENT TO EMPLOYMENT AGREEMENT
PAGE 1
<PAGE> 8
2. The Agreement is amended to add Section 21 as follows:
21. COVENANT NOT TO COMPETE. Since Executive will be a key employee
of the Company, Executive shall have access to Confidential
Information, and the national scope of the Company's proposed business,
Employee agrees that the restrictions on his future activities
contained in this Section are fair, reasonable and necessary.
21.1. Covenant Period. The covenants contained in this Section
shall continue until one year after the later of:
21.1.1. termination of Executive's employment;
21.1.2. the Company receives revenue from wholesale long
distance services;
21.1.3. the Company receives revenue from Open Access Mediation
Services; or
21.1.4. the Company becomes subject to the reporting
requirements of sections 12 or 15(d) of the federal
Securities Exchange Act of 1934.
(the "Covenant Period"). Subsections 21.1.2, 21.1.3, and 21.1.4 do
not apply if they have not occurred within one year after termination
of Executive's employment.
21.2. Restrictions on Future Employment. Until the Covenant Period
expires, Executive shall not, directly or indirectly, own, manage,
operate, control, be employed by, assist or participate in the
ownership, management, operation or control of a business operating
in the United States that is engaged in the following activities:
21.2.1. the provision of management, billing and control
services using Advanced Intelligent Network
technologies;
21.2.2. the provision of wholesale long distance services using
Asynchronous Transfer Mode techniques: or
21.2.3. the provision of Open Access Mediation Services.
This restriction applies whether or not the Company is authorized to
provide and actually provides such services during of Executive's
employment by the Company
21.3. Non-solicitation. Executive shall not directly or indirectly:
21.3.1 induce any employee of the Company to leave the employ
of the Company;
21.3.2. interfere with the relationship between the Company and
any employee;
AMENDMENT TO EMPLOYMENT AGREEMENT
PAGE 2
<PAGE> 9
21.3.3. hire any Company employee to work for any organization
of which Executive is an officer, director, employee,
consultant, independent contractor or owner of an equity
or other financial interest; or
21.3.4. solicit or service any actual or prospective supplier,
client, customer of the Company who was solicited or
serviced during Executive's employment;
21.3.5. interfere or attempt to interfere with any transaction
involving the Company;
until the Covenant Period expires.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY: TELEHUB COMMUNICATIONS CORPORATION,
a Nevada corporation
By: /s/ Donald H. Sledge
---------------------------------------------
Donald H. Sledge, Chief Executive Officer
EXECUTIVE: /s/ RICHARD M. HARMON
---------------------------------------------------
RICHARD M. HARMON
AMENDMENT TO EMPLOYMENT AGREEMENT
PAGE 3
<PAGE> 1
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is entered into by and between,
TeleHub Network Services Corporation, an Illinois corporation, with offices at
2033 North Main Street, Suite 340, Walnut Creek, California 94596 and 1375
Tri-State Parkway, Suite 250, Gurnee, Illinois 60031 (the "EMPLOYER"), and
HERBERT H. SWINBURNE, JR., an individual residing at 2112 Pineview Drive,
Oakville, Ontario, Canada ("EXECUTIVE"). The effective date of this Agreement is
January 1, 1998 ("EFFECTIVE DATE").
R E C I T A L S
WHEREAS, Employer desires to hire and employ Executive as its President of
TeleHub Network Services Corporation.
WHEREAS, Executive desires to become an employee of Employer;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
1. EMPLOYMENT. Employer, its subsidiaries and Affiliates (collectively, the
"COMPANY") agree to employ Executive, and Executive hereby agrees to be employed
by the Company on a full-time basis. For the purpose of this Agreement, the term
"AFFILIATE " means a person, firm or corporation that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control of Employer. Executive represents and warrants that the execution
of this Agreement and his performance under this Agreement does not breach any
other agreement and does not require the consent of any other person.
2. DUTIES. Executive shall perform the duties as assigned by the Company from
time to time and shall serve the Company faithfully and to the best of
Executive's ability. The Executive will hold, without additional compensation,
such other positions for the Company to which Executive may be appointed or
elected from time to time. In its sole discretion the Company may, from time to
time, change Executive's title or responsibility. Executive's conduct must
promote the best interests of the Company and must not discredit the Company,
its products or services.
3. EXCLUSIVITY. Executive shall devote substantially his full business time,
efforts, attention, skill and energy to the Company's business. Executive shall
disclose all other business activities to the Company and Executive shall not
engage in any other business activity that requires significant personal
services by Executive. After notifying the Company, Executive may take
reasonable personal time for:
3.1. personal investments that do not require significant services by
Executive;
3.2. participation in volunteer or charitable activities;
3.3. participation in industry-related organizations;
3.4. with prior Board approval, serving as a Director for other companies;
and
3.5. activities approved in advance by the Board;
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except that Executive shall cease any such outside activity if the Company
determines that such activity will interfere or conflict with the Company's
interests.
4. CONFLICTS OF INTEREST. Executive shall not engage in any activity that, in
the Company's judgment, may interfere or conflict with the proper performance of
Executive's duties or the Company's interest. If Executive has any interest in a
proposed transaction involving the Company, that interest must be fully
disclosed to the Company and the Company must approve of the transaction.
5. INVENTIONS AND CONFIDENTIALITY. Executive acknowledges that TeleHub is in
a unique, world-wide business and has expended significant amounts to develop
its proprietary products and services and, by reason of Executive's position
with the Company, Executive will have access to Confidential Information,
proprietary information and other intellectual property of the Company. As a
condition to the Executive's employment with the Company, the Executive agrees
to and has executed and delivered to the Company, the Invention Assignment and
Confidentiality Covenant ("Covenant"), the terms of which are hereby
incorporated into and made part of this Agreement. Executive agrees that the
restrictions contained in the Covenant are fair, reasonable and necessary.
6. COMPENSATION AND BENEFITS. In consideration of the services to be rendered
pursuant to this Agreement, Executive shall receive the following compensation
and benefits during the term of his employment:
6.1. Salary. The Company shall pay Executive an annual base salary,
payable semimonthly in arrears. The annual base salary during the term hereof
shall be $160,000.00 ( Salary").
6.2. Bonus. The Company will pay Executive an incentive bonus up to fifty
percent (50%) of Executive's base Salary per year ("BONUS") based upon
Executive's accomplishments of objectives that are mutually defined and agreed
upon between, and documented by, Executive and the Company. The Company shall
pay Executive's Bonus ninety (90) calendar days after the close of the Company's
fiscal year. The Company's Board of Directors, with the advice of Executive's
supervisor, shall annually review the amounts of Executive's base Salary and
Bonus.
6.3. Benefits. The Company may provide Executive with such insurance
plans, hospitalization plans, retirement plans and other executive benefits that
are generally provided to executive employees of the Company and for which
Executive is eligible under the terms and conditions thereof.
6.4. Stock Options. The Company has created a stock option plan for
directors, officers and employees. Executive shall be granted 100,000 shares at
a $10.00 per share exercise price in accordance with the terms of the Plan.
6.5. Performance Options. An additional 100,000 shares shall be granted
as performance options. These options shall vest at the end of the 1st quarter
of 1999, 2000 and 2001 based upon the Executive exceeding the business plan
goals which were agreed upon by the end of the preceding year's 1st Quarter.
Performance option goals shall be structured in such a way that missed
commitments in one year may be made up in a subsequent year's performance.
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6.6. Annual Leave. Executive shall be entitled to vacations, sick leaves,
personal days and other time off in accordance with the Company's policies in
effect for officers and executive employees of the Company which shall include
no less than three weeks vacation per year.
6.7. Car Allowance. The Company shall pay Executive a car allowance of
$450.00 per month, in addition to Executive's other compensation.
6.8. Relocation Expense. The Executive shall relocate to the vicinity of
the Company's business offices in Illinois. The Company shall reimburse the
Executive for reasonable expenses incurred for his relocation. Executive shall
be provided temporary housing in a corporate apartment for three months which
may be extended if the Company and the Executive mutually agree that such
extension is necessary.
6.8.1. Upon the execution of a mutually agreeable loan and security
agreement, Executive shall receive $189,000.00 Canadian as a
loan secured by Executive's Toronto home. The loan is to be
repaid to the Company upon the sale of the home.
6.9. Reimbursement of Expenses. Upon receipt of an itemized accounting of
such expenses with acceptable supporting documentation, the Company shall
promptly reimburse Executive for all reasonable and necessary out-of-pocket
expenses incurred by Executive in connection with the business of the Company
and in performance of Executive's duties under this Agreement in accordance with
Company policy.
7. DURATION. Executive's employment shall commence on the Effective Date and
continue until terminated in accordance with Section 8. The initial term of
Executive's employment shall be four (4) years ("INITIAL TERM"), and shall be
automatically renewed for additional terms of one (1) year unless earlier
terminated pursuant to the terms of this Agreement. After termination of
Executive's employment, the applicable provisions of Sections 5 and 8 shall
remain in full force and effect until the time specified in each such section.
8. TERMINATION. Executive's employment may be terminated as follows:
8.1. Expiration of Term. Upon written notice by either party delivered at
least thirty (30) calendar days before the expiration of the Initial Term or
renewal term (collectively, "TERM"), Executive's employment will terminate at
the expiration of the then current Term.
8.2. Death. If Executive dies during the Term of his employment, the
Company shall pay his estate the compensation that would otherwise be payable to
him for the month in which his death occurs, and his employment shall be deemed
terminated on the last day of such month.
8.3. Cause. The Company may immediately terminate Executive's employment
at any time for:
8.3.1. non-performance or gross negligent performance by Executive of
any material duties which continues after fifteen (15)
calendar days' written notice specifying such non-performance
or gross negligent performance; or
8.3.2. the commission of any theft, fraud, embezzlement or similar
crime involving the commission of any felony; for acts of
dishonesty or moral turpitude; for violation of Company policy
or applicable local, state or federal laws or regulations,
including anti-discrimination laws or
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securities laws; or for violation of other laws which causes
material economic damage to the Company or material damage to
the business reputation of the Company; or for a material
breach of any provision of this Agreement.
8.4. Demotion. The Executive may terminate Executive's employment with
the Company upon thirty (30) calendar days' written notice if the Company
assigns the Executive to a position of lower responsibility and Executive
rejects such assignment.
8.5. Discretion. Either party, in its sole discretion, may terminate
Executive's employment at any time upon thirty (30) calendar days' prior written
notice.
8.6. Change of Control. Either party may terminate Executive's employment
upon at least thirty (30) calendar days' written notice upon the occurrence of
any of the following events:
8.6.1. sale by the Company of substantially all of its assets to a
single purchaser or associated group of purchasers who are not
Affiliates of the Company;
8.6.2. sale, exchange or other disposition in one transaction of 35%
or more of the outstanding voting stock of the Company to
persons, firms or corporations who are not Affiliates of the
Company;
8.6.3. merger or consolidation of the Company in a transaction not
involving an Affiliate of the Company in which the
shareholders of the Company receive less than 50% of the
outstanding voting stock of the new continuing corporation or
successor entity;
8.6.4. a bona fide decision by the Company to terminate its business
and liquidate its assets (but only if such liquidation is not
part of a plan to carry on the Company's business through its
shareholders).
8.7. Severance. If Executive's employment is terminated pursuant to
Subsection 8.4 or 8.6 hereof, or the Company terminates Executive's employment
pursuant to Subsection 8.5 hereof, the Company shall pay Executive a Termination
Fee equal to one hundred percent (100%) of Executive's annual Salary, plus
Benefits, plus the Bonus specified in Section 6.2 hereof; if Executive's
employment is terminated during the first year of employment, the Bonus will be
fifty percent (50%) of Executive's annual Salary pro-rated for the portion of
the year served; otherwise the Bonus will be the amount of the previous year's
Bonus pro rated for the portion of the year served. Such Bonus shall be paid
within ninety (90) calendar days of Executive's termination. Payments to be made
pursuant to this paragraph shall only be made upon Executive's execution of a
standard release waiving all claims against the Company.
9. SECURITIES MATTERS. Since the Executive will have access to Confidential
Information, Executive's ability to engage in securities transactions (including
securities issued by the Company and by others) will be limited. Executive
agrees to:
9.1. not engage in any transactions that intentionally or knowingly
violate federal and state securities laws;
9.2. file all reports required by securities regulatory authorities;
9.3. provide information about securities transactions when requested by
the Company;
9.4. follow written Company policies concerning securities transactions;
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9.5. execute any "lock-up" agreements or other restrictions on
transactions when requested by the Company; and
9.6. comply with securities law requirements for all transactions.
While Executive may request the Company's permission to engage in proposed
securities transactions, Executive is still responsible for compliance with
applicable legal requirements.
10. INJUNCTIVE RELIEF. Upon a material breach or threatened material breach by
Executive of any of the provisions of Sections 3, 4, 5 and 9 of this Agreement,
or any term of the Covenant, the Company shall be entitled to institute and
prosecute proceedings in any court of competent jurisdiction either in law or in
equity to obtain the specific performance thereof by Executive or to enjoin
Executive from violating the provisions hereof. Pending the outcome of any such
litigation, Company shall be entitled to obtain injunctive or other relief,
without bond. If the Company takes such legal action, the prevailing party, as
part of its damages, shall be entitled to recover its legal fees and expenses
incurred in such action from the other party.
11. SEVERABILITY. It is the desire and intent of the parties that the
provisions of this Agreement shall be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, if any provision of this Agreement shall be
adjudicated to be invalid or unenforceable, then the remaining provisions will
continue in full force and effect.
12. NOTICES. All communications, requests, consents and other notices under
this Agreement shall be given in writing and delivered by courier, registered or
certified mail (postage prepaid), return receipt requested, and shall be
effective upon delivery. Notices to the Company shall be delivered to the
attention of the General Counsel at TeleHub's Walnut Creek address written
above, and Notices to Executive shall be delivered to the Executive's address
written above.
13. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by Illinois
law, irrespective of choices of law principles. The parties agree that any
action brought pursuant to the terms of this Agreement shall be brought in, and
the parties hereby submit exclusively to, the personal jurisdiction and venue of
the state and federal courts in or presiding over Chicago, Illinois.
14. ASSIGNMENT. The Company may assign its rights and obligations under this
Agreement to any successor corporation or to any acquirer of substantially all
of the business of the Company, and all covenants and agreements hereunder shall
inure to the benefit of and be enforceable by or against any such assignee.
Neither this Agreement nor any rights or duties hereunder may be assigned or
delegated by Executive.
15. NO WAIVER. A waiver by either party of any breach of this Agreement shall
not be a waiver for any preceding or succeeding breach. A waiver by either party
of any right under this Agreement shall not be construed as a waiver of any
other right.
16. AMENDMENTS. No provision of this Agreement shall be altered, amended,
revoked or
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waived, except by an instrument in writing, signed by the Company and Executive.
17. BINDING EFFECT. Except as otherwise provided herein, this Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective legal representatives, heirs, successors and assigns.
18. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
19. ENTIRE AGREEMENT. This Agreement together with the Invention Assignment
and Confidentiality Covenant set forth the entire agreement and understanding of
the parties related to the subject matter of this Agreement and supersede all
prior and contemporaneous understandings, agreements or representations by or
between the parties, whether written or oral.
20. DISPUTES. Other than an action brought under Section 10, which may be
brought directly in any court of competent jurisdiction, any dispute or
controversy arising under, out of, in connection with or in relation to this
Agreement or the employment of Herbert H. Swinburne, Jr., and the Company or the
termination of employment of Herbert H. Swinburne, Jr., with the Company,
including any claims under Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act, the Americans With Disabilities Act, the
Family and Medical Leave Act, and any other federal, state or local statute,
regulation or ordinance pertaining to employment, shall be finally determined
and settled by arbitration. Arbitration shall be initiated by one party making
written demand upon the other party and simultaneously filing the demand
together with required fees in the office of the American Arbitration
Association in Chicago, Illinois. The arbitration proceeding shall be conducted
in Chicago, Illinois by a single arbitrator in accordance with the National
Rules for the Resolution of Employment Disputes of the American Arbitration
Association, except as otherwise provided herein. Discovery shall be permitted
to the extent ordered by the arbitrator in compliance with and pursuant to the
Employment Dispute Resolution Rules of the American Arbitration Association. The
arbitration award shall be a final and binding determination of the dispute and
shall be fully enforceable as an arbitration award in any court having
jurisdiction and venue over such parties. The prevailing party (as determined by
the arbitrator) shall be awarded by the arbitrator such party's attorneys' fees,
costs and expenses in connection with such proceeding, in addition to any other
relief that may be granted.
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IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the "EFFECTIVE DATE" as stated above.
COMPANY: TeleHub Network Services Corporation,
an Illinois corporation
Date: 12/5/97 Date: 12/5/97
----------- -----------
By: /s/ Donald H. Sledge By: /s/ Herbert H. Swinburne
--------------------------------- -----------------------------
Donald H. Sledge, President & CEO Herbert H. Swinburne, Jr.
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EXHIBIT - 10.14
CONSULTING SERVICES AGREEMENT
THIS CONSULTING SERVICES AGREEMENT ("AGREEMENT") is made effective
January 2, 1997, by and between TELEHUB COMMUNICATIONS CORPORATION, a Nevada
corporation ("TELEHUB"), whose address is 2033 North Main Street, Suite 340,
Walnut Creek, California 94596, and INTERNATIONAL TELECOMMUNICATIONS CONSULTING,
INC., a Cayman corporation, whose address is Box 268, Georgetown, Cayman
Islands, British West Indies ("CONSULTANT").
WHEREAS, TeleHub desires to engage Consultant to provide consulting
services to TeleHub and Consultant wishes to provide such services to TeleHub
all upon the various terms and conditions as hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants of the parties
contained herein, THE PARTIES AGREE AS FOLLOWS:
1. Consulting.
1.1 Consultant shall provide consulting services to TeleHub, its
subsidiaries and affiliate corporations as may be directed, in writing, by the
board of directors of TeleHub (the "BOARD") or the president of TeleHub.
1.2 TeleHub shall not request Consultant to render services within the
United States during the term of this Agreement and shall limit the hours of
consultation requested to 75 hours, including travel time, in any given month.
1.3 Consultant represents and warrants that William W. Becker will remain
the President and Chief Executive Officer of Consultant as long as William W.
Becker is alive.
2. Consulting Fee.
2.1 TeleHub will compensate Consultant, free of tax withholding of any kind
or amount for Consultant's services in a net amount equal to $175,000.00
annually ("CONSULTING FEE") for the duration of this Agreement. TeleHub shall
pay the Consulting Fee in equal monthly installments of $14,583.33, on the last
day of each month.
2.2 In the event that TeleHub fails to make a payment when due, Consultant
shall notify TeleHub, and TeleHub shall have 10 business days from date of
receipt of notice to pay the overdue amounts. If TeleHub fails to pay the
overdue amount within that cure period, TeleHub shall pay interest in the amount
of 1.5% per month on the past due amount.
2.3 As between TeleHub and Consultant, Consultant shall be responsible for
any and all taxes, including, but not limited to, interest, fines, or penalties
due to any taxing authority ("TAXES"). In the event that TeleHub is required to
pay any amounts for any Taxes with respect to
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actual or constructive payments to Consultant, at TeleHub's discretion, either
(i) TeleHub may offset the amount of such Taxes against future payments to
Consultant under this or any other agreement, or (ii) Consultant shall promptly
reimburse TeleHub for the amount of such Taxes upon TeleHub's request. In the
event that Consultant is required to pay any Taxes, Consultant will not seek,
nor will Consultant be entitled to any form of, reimbursement for such Taxes
from TeleHub. Neither party shall enter into any arrangement with any tax
authority to provide information about the other party, unless ordered to do so
by a court or other regulatory body having jurisdiction.
2.4 No other consulting fees will be paid to Consultant, other than
those amounts set forth in this Section 2.
3. Expenses. TeleHub shall further reimburse Consultant for reasonable
expenses incurred in the travel of Consultant's employees for the purposes of
providing consultation services, all as specifically requested and pre-approved
in writing by TeleHub and upon receipt of an itemized expense report.
4. Duration. The term of this Agreement ("TERM") shall commence on January
1, 1997, and continue through February 28, 2002. TeleHub may not cancel this
Agreement prior to the earlier of: (i) February 28, 2002; or (ii) the death of
the Consultant's president and chief executive officer.
5. Effect of Termination. All payments of any unaccrued installments of
Consulting Fees will cease upon the earlier of (i) the death of the president
and chief executive officer of Consultant, or (ii) the end of the Term.
6. Confidentiality. The relationship between TeleHub and Consultant is one
of confidence and trust. Consultant agrees that the provisions of this Section
are fair and reasonable because, as a result of its consulting relationship with
TeleHub ("CONSULTANCY"), Consultant will have access to proprietary TeleHub
information and that such information is a highly-valued asset of TeleHub.
6.1 Confidential Information. The term "CONFIDENTIAL INFORMATION" means
all information relating to TeleHub, its subsidiaries and affiliate
corporations, and its customers and suppliers considered by TeleHub to be
confidential, including, but not limited to:
6.1.1. TeleHub's plans, products, processes and personnel;
6.1.2. the nature of TeleHub's services and any area where such
services are performed or planned to be performed;
6.1.3. research, development, manufacturing, purchasing, and
engineering;
6.1.4. markets, marketing strategies, customer lists and prospect
lists;
6.1.5. merchandising, selling, pricing, tariffs or contractual
terms,
6.1.6. inventions, discoveries, concepts and ideas, whether
patentable or not, processes, methods, formulas, and
techniques, trade secrets, related improvements and
knowledge;
6.1.7. financial and accounting information;
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6.1.8. TeleHub's technology, expertise or business; and
6.1.9. any component of Confidential Information or anything
derived from Confidential Information.
TeleHub's determination that specific information constitutes Confidential
Information shall be binding, except for information already in the public
domain other than by Consultant's act and except for information which is no
longer a trade secret as defined by the Uniform Trade Secrets Act.
6.2. Non-disclosure. Consultant agrees that it shall at no time, whether
during the Consultancy or at any time thereafter, disclose or use any
Confidential Information for any purpose other than the conduct of TeleHub's
business. Upon the breach of this covenant by Consultant, TeleHub shall be
entitled without notice to obtain relief pursuant to Section 11 below.
6.3. Notice to Consultant. Consultant will immediately notify TeleHub if
Consultant learns that Confidential Information has been disclosed or is about
to be disclosed, whether by Consultant's acts, acts of third parties, law,
regulation or court order. Consultant will cooperate with TeleHub's efforts to
prevent or limit disclosure of Confidential Information.
6.4. Ownership. Any Confidential Information that is directly originated,
developed or perfected to any degree by Consultant during the Consultancy shall
be and remain the sole property of TeleHub and shall be deemed trade secrets of
TeleHub. To the extent that any Confidential Information constitutes an original
work of authorship by Consultant which is protectable by copyright, Consultant
acknowledges that such work is a "work for hire" as defined by the U.S.
Copyright Act (17 U.S.C. Section 101 et seq.).
6.5. Assignment. Consultant hereby assigns TeleHub all of its intellectual
property rights (including copyrights, patents, and trademarks) that may exist
due to its direct involvement with TeleHub.
6.6. Return of Confidential Information. Upon termination of the
Consultancy or upon request by the Board at any time, Consultant or his legal
representative shall deliver to TeleHub all original and duplicates and/or
copies of all documents, records, notebooks, computer records or media, and
similar materials containing Confidential Information then in his possession.
6.7. Further Assurances. Consultant agrees to execute such separate and
further confidentiality agreements embodying and enlarging upon the provisions
of this Section as TeleHub may reasonably request.
7. Non-solicitation.
7.1. Consultant shall not directly or indirectly:
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7.1.1. induce any employee of TeleHub to leave the employ of
TeleHub;
7.1.2. interfere with the relationship between TeleHub and any
employee;
7.1.3. hire any TeleHub employee to work for any organization of
which Consultant is an officer, director, employee,
consultant, independent contractor or owner of an equity or
other financial interest;
7.1.4. solicit or service any actual or prospective supplier,
client, customer of TeleHub who was solicited or serviced
during the Consultancy by or on behalf of TeleHub; or
7.1.5. interfere or attempt to interfere with any transaction
involving TeleHub;
until the expiration of the Covenant Period as defined in subsection 7.2. below.
7.2. Covenant Period. The covenants contained in this Section shall
continue until one year after the later of:
7.2.1. termination of the Consultancy;
7.2.2. TeleHub receives revenue from wholesale long distance
services;
7.2.3. TeleHub receives revenue from Open Access Mediation
Services; or
7.2.4. TeleHub becomes subject to the reporting requirements of
sections 12 or 15(d) of the federal Securities Exchange Act
of 1934.
(the "COVENANT PERIOD"). Subsections 7.2.2, 7.2.3, and 7.2.4 do not apply if
they have not occurred within one year after termination of the consultancy.
8. Relationships of Parties.
8.1 Both TeleHub and Consultant agree that Consultant will act as an
independent contractor in the performance of its duties under this Agreement.
Under this Agreement, Consultant is not a legal representative of TeleHub for
any purpose other than acting as Consultant, and is not granted, by the terms or
execution of this Agreement, any right or authority to assume or create any
responsibility on behalf of, or in the name of, TeleHub, or to bind TeleHub in
any manner whatsoever.
8.2 Consultant retains the right to exercise full control of and
supervision over the performance of Consultant's obligations, and full control
over the employment, direction, compensation and discharge of all of its
employees assisting in the performance of such obligations. Consultant shall be
responsible for Consultant's own acts and those of Consultant's employees,
representatives, agents, and assigns during the performance of Consultant's
obligations under this Agreement.
9. Notices. Any notice or other communication required or permitted hereunder
shall be delivered by hand, courier, or registered or certified mail, return
receipt requested, airmail postage prepaid, addressed to the president of the
receiving party at the respective address as set forth above
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(or at such other address as either party shall designate to the other in
writing for such purpose), and shall be effective upon delivery if delivered by
hand or courier, or three days after the date of mailing if delivered by mail.
10. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement may not be assigned by either party
without the prior express written consent of the other party.
11. Injunctive Relief. Upon a material breach or threatened material breach
by Consultant of any of the provisions of Sections 6 or 7 of this Agreement,
TeleHub shall be entitled to an injunction restraining Consultant from such
breach, together with any other relief or remedy available, for such breach or
threatened breach, including the recovery of damages. Nothing herein shall be
construed as prohibiting TeleHub from pursuing any other remedies for such
breach or threatened breach. If TeleHub takes legal action to enforce the
provisions of this Agreement or to enjoin Consultant from violating this
Agreement, the prevailing party, as part of its damages, shall be entitled to
recover its legal fees and expenses incurred in such action from the losing
party.
12. Governing Law and Venue. This Agreement shall be governed by, and shall
be construed and regulated in accordance with the laws of the State of
California. Any action to enforce this Agreement shall be brought in any court
of competent jurisdiction located in or having jurisdiction over Walnut Creek,
California.
13. Severability. It is the desire and intent of the parties that the
provisions of this Agreement shall be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, if any particular provision or portion of
this Agreement shall be adjudicated to be invalid or unenforceable, this
Agreement shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of such Section in the particular jurisdiction in which
such adjudication is made.
14. Waivers. A waiver by either party of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent, or
other, breach.
15. Amendments. No provision of this Agreement shall be altered, amended,
revoked or waived, except by an instrument in writing, signed by TeleHub and
Consultant.
16. Paragraph Headings. The paragraph headings used in this Agreement are
solely for the convenience of the parties and in no way restrict or limit the
provisions contained therein.
17. Execution in Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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18. Entire Agreements. This Agreement sets forth the entire agreement and
understanding of the parties and supersedes all prior understandings,
agreements, or representations by or between the parties, whether written or
oral.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed by its duly authorized officer effective as of the day and year first
above written.
TeleHub: TELEHUB COMMUNICATIONS CORPORATION,
a Nevada corporation
By: /s/ Donald H. Sledge
-------------------------------------------
Donald H. Sledge, Chief Executive Officer
Consultant: INTERNATIONAL TELECOMMUNICATIONS
CONSULTING, INC.,
a Cayman Islands corporation
By: /s/ William W. Becker
-------------------------------------------
William W. Becker, President
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EXHIBIT 10.15
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Agreement") is made by and between HARTFORD HOLDINGS
LTD., a Cayman Islands Corporation ("Hartford"), DONALD H. SLEDGE ("Sledge",
Hartford and Sledge are collectively, "Lenders"), and TELEHUB COMMUNICATION
CORP., an Illinois corporation (the "Borrower").
RECITALS
WHEREAS, Borrower requires funds for operating capital and further
development of its Virtual Service Management System ("VSMS") Platform;
WHEREAS Lender Sledge is an officer, director and shareholder of Borrower;
WHEREAS Lender Hartford is a significant shareholder of Borrower and an
affiliate of Hartford is an officer and director of Borrower;
WHEREAS, Lenders are willing to lend certain funds to Borrower on the terms
and conditions set forth in this Agreement and in the Notes (collectively, "Loan
Documents") evidencing the Loan; and
WHEREAS, Borrower intends to repay the borrowed funds from the proceeds of
a public or private offering of Borrowers' securities.
NOW, THEREFORE, in consideration of the premises, the mutual covenants and
agreement contained herein and other good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged, Lenders and
Borrower hereby covenant and agree as follows:
1. AGREEMENT TO BORROW AND LEND. Subject to the terms and conditions of the
Loan Documents, Lenders agree to make available to Borrower a loan ("Loan") in
the original principal amount of FIVE HUNDRED THOUSAND DOLLARS ($500,000.00). To
evidence the Loan, Borrower will execute the two Promissory Notes ("Notes")
attached to this Agreement as Exhibit 2 and Exhibit 3.
2. ADDITIONAL LOANS. In their discretion, Lenders may agree to make
Additional Loans to Borrower. Lenders have not promised, represented or
committed that they will make any Additional Loans. Each Additional Loan shall
be evidenced by a promissory note, all Additional Loans shall be subject to the
terms and conditions of this Agreement and the associated promissory note, and
upon accepting an Additional Loan, Borrower reiterates each representation in
this Agreement as of the date of the Additional Loan.
3. BORROWER'S REPRESENTATION. Borrower hereby represents and warrants that:
3.1. No Additional Advances. Lenders have not promised, represented or
committed that they will loan any additional funds to Borrower, or that Lenders
will renew or extend this Loan or any Additional Loans at maturity.
<PAGE> 2
3.2. Accurate Financial Statements. The financial statements, business plan
and other information concerning the financial condition of Borrower provided to
Lender ("Financial Statements") is materially true and correct and accurately
depicts the financial condition of Borrower as of the date hereof. Borrower
acknowledges that Lenders have made the Loan in reliance upon the Financial
Statements.
3.3. Valid Related Party Transaction. Lenders have disclosed their
affiliation to Borrower and their financial interest in this transaction, this
transaction is fair to the Borrower and Borrower's disinterested directors and
shareholders have approved this transaction, as evidenced by Exhibit 1.
Accordingly, the Loan Documents are valid and binding obligations of the
Borrower.
4. BORROWER'S COVENANTS.
4.1. Use of Proceeds. Borrower covenants that the proceeds of the Loan
shall be used by Borrower solely to fund Borrower's corporate operations and the
development of its VSMS Platform. All expenditures and disbursements shall be
authorized and approved by the Borrower's Board of Directors or Officers.
4.2. Books and Records. Borrower shall maintain true and proper books,
records, reports and accounts ("Books and Records") of all of Borrower's
business operations and activities. Borrower shall keep such Books and Records
at its principal place of business.
4.3. Access to Books and Records. Borrower shall permit Lenders to examine
all of Borrower's Books and Records at any time and to copy or to make extracts
from Books and Records as Lenders deem necessary.
4.4. Tax Returns. Tax returns of the Borrower are to be provided to Lenders
upon request anytime during the term of the Loan.
4.5. Notice of Adverse Events. Borrower will immediately notify Lenders of
any event or circumstance which reasonably could be deemed to have a materially
adverse effect on Borrower's financial condition, Borrower's ability to perform
its obligation under the Loan Documents, its ability to sell securities, or its
ability to repay the Notes.
5. Events of Default. The occurrence of any one or more of the following
events or the existence of one or more of the following conditions shall
constitute an event of default under this Agreement:
5.1. Nonpayment. Failure to pay when due any installment of principal or
interest due under either Note, whether due on the date provided for therein or
by acceleration or otherwise or failure to pay the entire outstanding principal
balance of the Loan, together with all accrued and unpaid interest then
outstanding, on the Maturity Date defined in the Notes or upon acceleration.
5.2. False Representations. An event of default shall occur if any
representation or warranty made in writing to Lenders by Borrower herein or in
connection with the making of the Loan shall prove at any time to have been
incorrect in any material respect when made.
5.3. Breach of Covenants. An event of default shall also occur if Borrower
fails to comply with any covenant made in the Loan Documents.
6. REMEDIES FOR DEFAULT. Upon the occurrence of any event of default and at
any time thereafter:
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6.1. Acceleration of Maturity. All principal, interest and other amounts
payable under the Notes shall, at the option of Lenders, become immediately due
and payable without presentment, demand, protest or other notice of any kind,
all of which Borrower hereby expressly waives.
6.2. Default Interest Rate. After an event of default, the outstanding
principal balance of the Notes shall bear interest, payable upon demand, at a
rate for each day equal to eighteen percent (18%) annually (the "Default
Interest Rate"). The application of the Default Interest Rate shall not be
interpreted or deemed to extend any cure period set forth in any Loan Document
or otherwise to limit any of Lenders' remedies under this Agreement or any of
the other Loan Documents.
6.3. Other Remedies. Lenders may proceed with every remedy available at law
or in equity or provided for in this Agreement or the Notes in such order or
sequence as Lender may determine in its sole discretion, including concurrently,
independently, or successively, and all expenses incurred by Lender in
connection with any remedy shall be deemed indebtedness of Borrower to Lenders
including, but not limited to, attorneys' fees incurred by Lenders.
7. BORROWER NOT RELEASED. Without affecting any obligation of Borrower under
this Agreement, Lenders may renew, extend or otherwise change the terms and
conditions of the Loan, Notes or any of the Collateral, take or release any
collateral as security for the Loan.
8. AMENDMENTS. No provision or term of this Agreement or the Notes may be
amended, modified, revoked, supplemented, waived or otherwise changed except by
a written instrument duly executed by Borrower and Lenders and designated as
such.
9. SEVERABILITY. Whenever possible, each provision of the Agreement and Notes
shall be interpreted so as to be effective and valid under Illinois law. Should
any provision, covenant or agreement contained herein be deemed invalid, illegal
or unenforceable in any jurisdiction, the validity, legality and enforceability
of the remaining provisions of this Agreement shall not be impaired thereby, nor
shall the validity, legality or enforceability of any such defective provision
be in any way affected or impaired in any other jurisdiction.
10. SUCCESSORS AND ASSIGNS BOUND; ASSIGNMENT. The covenants and agreements
contained herein shall bind Borrower, its successors and assigns. This Agreement
may not be assigned by Borrower without the prior written consent of Lenders.
Subject to the foregoing restriction, this Agreement shall inure to the benefit
of Lenders, their successors and assigns.
11. NO THIRD PARTY BENEFITS. This Agreement is made for the sole benefit of
Borrower and Lenders, and their respective successors and assigns, and no other
person or persons shall have any rights or remedies under or by reason of this
Agreement.
12. HEADINGS. The captions and headings of the paragraphs in the Agreement
are for convenience only and are not used to interpret or define the provisions
of the Agreement.
3
<PAGE> 4
13. CONFLICT. Should any provision of any Loan Document conflict with any
provision of this Agreement, the provision selected by Lenders, in their sole
discretion, shall govern and shall be controlling.
14. DEFINED TERMS. All capitalized terms used herein shall have the same
meaning as in the Loan Documents unless expressly defined herein.
15. GOVERNING LAW. The Loan Documents shall be governed by and interpreted
in accordance with the laws of the State of Illinois.
16. COUNTERPARTS. This Agreement may be executed in counterparts and all
such counterparts, as so executed, shall constitute one Agreement, binding upon
all the signatories thereto, notwithstanding that all of the signatories are not
signatories to the original or same counterpart.
EXECUTED THIS TWENTY SIXTH DAY OF AUGUST, 1996.
TELEHUB COMMUNICATIONS CORP.,
an Illinois corporation
By: /s/ John G. Makula
---------------------------------------
John G. Makula, Chief Financial Officer
HARTFORD HOLDINGS, LTD., DONALD H. SLEDGE
a Cayman Islands corporation
By: /s/ William W. Becker /s/ Donald H. Sledge
------------------------------ ------------------------------------------
William W. Becker, Chairman
4
<PAGE> 5
EXHIBIT 1
ACTION BY WRITTEN CONSENT IN LIEU OF A MEETING OF
THE BOARD OF DIRECTORS OF
TELEHUB COMMUNICATIONS CORP.
(August 26, 1996)
Exhibit 1: Page 1
<PAGE> 6
ACTION BY WRITTEN CONSENT IN LIEU OF A MEETING OF
THE BOARD OF DIRECTORS OF
TELEHUB COMMUNICATIONS CORP.
The following action is taken by written consent of the Board of Directors of
TELEHUB COMMUNICATIONS CORP., an Illinois corporation (the "Corporation"), in
lieu of a Meeting.
LOANS FROM HARTFORD AND MR. SLEDGE. Hartford Holdings Ltd. ("Hartford"), a
significant Corporation shareholder, and Mr. Donald H. Sledge, the Corporation's
Vice-Chairman and Chief Executive Officer, have offered to lend a total of
$500,000 to the Corporation for the development of the Virtual Service
Management System ("VSMS") Platform. These funds will be lent pursuant to a Loan
Agreement and evidenced by Promissory Notes from the Corporation.
Hartford is a significant Corporation shareholder and Mr. William W. Becker,
Hartford's principal shareholder, is the Corporation's Chairman, while Mr.
Sledge is the Corporation's Vice-Chairman and Chief Executive Officer, and Mr.
Sledge is a trustee of the Sledge Family Trust, a Corporation shareholder.
Hartford Mr. Becker, Mr. Sledge and the Sledge Family Trust have disclosed their
financial interest in this transaction. The disinterested Directors have
reviewed this transaction, consider it to be fair to the Corporation and deem it
advisable that the Corporation enter into the Loan Agreement with Hartford and
Mr. Sledge. Accordingly, the Board of Directors adopts the following
Resolutions:
RESOLVED: That the Corporation approves the Loan Agreement and
Promissory Notes and that Mr. Makula, the Corporation's Chief
Financial Officer is authorized to execute the Loan Agreement and
issue the Promissory Notes on behalf of the Corporation;
Adopted by Board of Directors as of August 26, 1996.
Each of the disinterested Corporation Directors has signed below to evidence
consent to the Board of Directors' adoption of the resolutions dated August 26,
1996:
ABSTAINING ABSTAINING
- ------------------------------------ ------------------------------------
William W. Becker, Chairman Donald H. Sledge, Vice-Chairman
/s/ Michael G. McLaughlin /s/ John G. Makula
- ------------------------------------ ------------------------------------
Michael G. McLaughlin John G. Makula
/s/ Barry C. Lescher
- ------------------------------------
Barry C. Lescher
I certify that each of the disinterested Corporation directors in office on
August 26, 1996, has executed this written consent.
/s/ John G. Makula
------------------------------------
John G. Makula, Secretary
August 26, 1996: Page 1
<PAGE> 7
RATIFICATION DISINTERESTED SHAREHOLDER
ROSEVILLE COMPUTER PROJECTS LIMITED, a Nevis, West Indies corporation
("Roseville"), holds 42.5% of the issued and outstanding shares of TELEHUB
COMMUNICATIONS CORP., an Illinois corporation ("TELEHUB"). Roseville has
reviewed the proposed transaction whereby Hartford Holdings Ltd. (Hartford),
another TELEHUB shareholder, will lend $450,000 to TELEHUB for operating capital
and Mr. Donald H. Sledge, TELEHUB's Vice-Chairman and Chief Executive Officer
(and trustee of the Sledge Family Trust, another TELEHUB shareholder) will lend
$50,000 to TELEHUB for operating capital. Hartford, Mr. Sledge, the Sledge
Family Trust and Mr. William W. Becker (TELEHUB's Chairman) have disclosed their
financial interest in the transaction to TELEHUB and Roseville. Roseville also
believes the transaction is fair to TELEHUB and necessary for TELEHUB's
continued operations.
Roseville hereby approves and ratifies the Loan Agreement between TELEHUB
and Hartford and Mr. Sledge and the issuance of Promissory Notes to Hartford and
Mr. Sledge.
ROSEVILLE COMPUTER PROJECTS LIMITED,
a Nevis, West Indies corporation
By: /s/
-----------------------------------
August 26, 1996: Page 2
<PAGE> 8
EXHIBIT 2
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR UNDER ANY U.S. STATE SECURITIES LAW. THIS NOTE
MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED UNLESS THAT TRANSFER IS
REGISTERED UNDER THE ACT AND ALL APPLICABLE U.S. STATE SECURITIES LAWS OR ARE IN
COMPLIANCE WITH AN EXEMPTION THEREFROM.
TELEHUB COMMUNICATION CORP.
PROMISSORY NOTE #1
US $450,000 August 26, 1996
TELEHUB COMMUNICATIONS CORP., an Illinois corporation (the "Company"), for
value received, hereby promises to pay to HARTFORD HOLDINGS LTD. (the "Holder")
the sum of FOUR HUNDRED FIFTY THOUSAND U.S. DOLLARS ($450,000.00) (the
"Principal Amount") together with interest on the outstanding Principal Amount
at the rate of 7.5% per annum, compounded quarterly, as follows:
1. MANDATORY PREPAYMENT. The Principal Amount plus any unpaid accrued
interest shall be paid to the Holder from the net proceeds from any sale of
Company equity or debt securities. Net proceeds includes all amounts received by
the Company less any related commissions, brokers' fees and other related costs
incurred in connection with the offer and sale of Company securities. The
Prepayment shall be made by the business day following the Company's receipt of
the proceeds from the sale.
2. CONVERSION. If the Company conducts an offering of its equity securities
("Offering"), it may elect to repay this Note by issuing equity securities to
the Holder on the same terms and conditions as the Offering.
3. MATURITY. If not paid sooner, the entire outstanding Principal Amount
with any unpaid accrued interest and all other sums due hereunder or under any
of the other Loan Documents, shall be paid to the Holder on August 1, 1998.
4. SUBJECT TO LOAN AGREEMENT. This Note evidences the Loan made under, and
is entitled to the benefits of the Loan Agreement dated August 26, 1996, between
the Company and the Holder; Reference is made to the Loan Agreement for
provisions relating to default, Holder's remedies for default and other terms
and conditions.
IN WITNESS WHEREOF, the Company has caused this Note to be signed in its name
and on its behalf by its duly authorized officer on the date first above
written.
TELEHUB COMMUNICATIONS CORP.,
an Illinois corporation
By: /s/ John G. Makula
---------------------------------------
John G. Makula, Chief Financial Officer
<PAGE> 9
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR UNDER ANY U.S. STATE SECURITIES LAW. THIS NOTE
MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED UNLESS THAT TRANSFER IS
REGISTERED UNDER THE ACT AND ALL APPLICABLE U.S. STATE SECURITIES LAWS OR ARE IN
COMPLIANCE WITH AN EXEMPTION THEREFROM.
TELEHUB COMMUNICATION CORP.
PROMISSORY NOTE #3
US $900,000 November 1,1996
TELEHUB COMMUNICATIONS CORP., an Illinois corporation (the "Company"), for
value received, hereby promises to pay to HARTFORD HOLDINGS LTD. (the "Holder")
the sum of NINE HUNDRED THOUSAND U.S. DOLLARS ($ 900,000.00) (the "Principal
Amount") together with interest on the outstanding Principal Amount at the rate
of 7.5% per annum, compounded quarterly, as follows:
1. MANDATORY PREPAYMENT. The Principal Amount plus any unpaid accrued
interest shall be paid to the Holder from the net proceeds from any sale of
Company equity or debt securities. Net proceeds includes all amounts received by
Company less any related commissions, brokers' fees and other related costs
incurred in connection with the offer and sale of Company securities. The
Prepayment shall be made by the business day following Company's receipt of the
proceeds from the sale.
2. CONVERSION. If the Company conducts an offering of its equity securities
("Offering"), it may elect to repay this Note by issuing equity securities to
the Holder on the same terms and conditions as the Offering.
3. MATURITY. If not paid sooner, the entire outstanding Principal Amount
with any unpaid accrued interest and all other sums due hereunder or under any
of the other Loan Documents, shall be paid to the Holder on August 30, 1997.
4. SUBJECT TO LOAN AGREEMENT. This Note evidences additional amounts loaned
under, and is entitled to the benefits of the Loan Agreement dated August 26,
1996, between the Company and the Holder. Reference is made to that Loan
Agreement for provisions relating to default, Holder's remedies for default and
other terms and conditions.
IN WITNESS WHEREOF, the Company has caused this Note to be signed in its name
and on its behalf by its duly authorized officer on the date first above
written.
TELEHUB COMMUNICATIONS CORP.,
an Illinois corporation
By: /s/ John G. Makula
---------------------------------------
John G. Makula, Chief Financial Officer
<PAGE> 10
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR UNDER ANY U.S. STATE SECURITIES LAW. THIS NOTE
MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED UNLESS THAT TRANSFER IS
REGISTERED UNDER THE ACT AND ALL APPLICABLE U.S. STATE SECURITIES LAWS OR ARE IN
COMPLIANCE WITH AN EXEMPTION THEREFROM.
TELEHUB COMMUNICATION CORP.
PROMISSORY NOTE #4
US $411,243.00 NOVEMBER 1,1996
TELEHUB COMMUNICATIONS CORP., an Illinois corporation (the "Company"), for
value received, hereby promises to pay to HARTFORD HOLDINGS LTD. (the "Holder")
the sum of FOUR HUNDRED ELEVEN THOUSAND TWO HUNDRED FORTY THREE U.S. DOLLARS ($
411,243.00) (the "Principal Amount") together with interest on the outstanding
Principal Amount at the rate of 12.0% per annum, compounded quarterly, as
follows:
1. MATURITY. If not paid sooner, the entire outstanding Principal Amount
with any unpaid accrued interest and all other sums due hereunder or under any
of the other Loan Documents, shall be paid to the Holder on July 1, 1998.
2. SUBJECT TO LOAN AGREEMENT. This Note evidences additional amounts lent
under, and is entitled to the benefits of the Loan Agreement dated August 26,
1996, between the Company and the Holder. Reference is made to that Loan
Agreement for provisions relating to default, Holder's remedies for default and
other terms and conditions.
IN WITNESS WHEREOF, the Company has caused this Note to be signed in its name
and on its behalf by its duly authorized officer on the date first above
written.
TELEHUB COMMUNICATIONS CORP.,
an Illinois corporation
By: /s/ John G. Makula
---------------------------------------
John G. Makula, Chief Financial Officer
<PAGE> 11
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR UNDER ANY U.S. STATE SECURITIES LAW. THIS NOTE
MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED UNLESS THAT TRANSFER IS
REGISTERED UNDER THE ACT AND ALL APPLICABLE U.S. STATE SECURITIES LAWS OR ARE IN
COMPLIANCE WITH AN EXEMPTION THEREFROM.
TELEHUB COMMUNICATION CORP.
PROMISSORY NOTE #5
US $600,000 November 30, 1996
TELEHUB COMMUNICATIONS CORP., an Illinois corporation (the "Company"), for
value received, hereby promises to pay to HARTFORD HOLDINGS LTD. (the "Holder")
the sum of SIX HUNDRED THOUSAND U.S. DOLLARS ($ 600,000.00) (the "Principal
Amount") together with interest on the outstanding Principal Amount at the rate
of 7.5% per annum, compounded quarterly, as follows:
1. MANDATORY PREPAYMENT. The Principal Amount plus any unpaid accrued
interest shall be paid to the Holder from the net proceeds from any sale of
Company equity or debt securities. Net proceeds includes all amounts received by
Company less any related commissions, brokers' fees and other related costs
incurred in connection with the offer and sale of Company securities. The
Prepayment shall be made by the business day following Company's receipt of the
proceeds from the sale.
2. CONVERSION. If the Company conducts an offering of its equity securities
("Offering"), it may elect to repay this Note by issuing equity securities to
the Holder on the same terms and conditions as the Offering.
3. MATURITY. If not paid sooner, the entire outstanding Principal Amount
with any unpaid accrued interest and all other sums due hereunder or under any
of the other Loan Documents, shall be paid to the Holder on August 30, 1997.
4. SUBJECT TO LOAN AGREEMENT. This Note evidences additional amounts loaned
under, and is entitled to the benefits of the Loan Agreement dated August 26,
1996, between the Company and the Holder. Reference is made to that Loan
Agreement for provisions relating to default, Holder's remedies for default and
other terms and conditions.
IN WITNESS WHEREOF, the Company has caused this Note to be signed in its name
and on its behalf by its duly authorized officer on the date first above
written.
TELEHUB COMMUNICATIONS CORP.,
an Illinois corporation
By: /s/ John G. Makula
---------------------------------------
John G. Makula, Chief Financial Officer
<PAGE> 1
EXHIBIT - 10.16
BRIDGE LOAN AGREEMENT
THIS BRIDGE LOAN AGREEMENT ("Agreement") is made by and between HARTFORD
HOLDINGS LTD., a Cayman Islands Corporation ("Hartford" or "Lenders") and
TELEHUB COMMUNICATIONS CORP., an Illinois corporation ("Borrower"),
RECITALS
WHEREAS, Hartford is a significant shareholder of Borrower and Mr. William
W. Becker, an affiliate of Hartford, is Chairman an officer and director of
Borrower;
WHEREAS, Hartford previously lent Borrower $2,361,243 for operating capital
and further development of Borrower's Virtual Service Management System ("VSMS")
Platform;
WHEREAS, Borrower intends to complete a private offering of its securities
in 1997;
WHEREAS, Borrower requires additional funds before the private offering
will be completed;
WHEREAS, Hartford is willing to lend certain additional funds to Borrower
on the terms and conditions set forth in this Agreement and in the Note
(collectively, "Loan Documents") evidencing the Loan; and
WHEREAS, Borrower intends to repay the borrowed funds from the proceeds of
the private offering of Borrowers' securities.
NOW, THEREFORE, in consideration of the premises, the mutual covenants and
agreement contained herein and other good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged, Lender and
Borrower hereby covenant and agree as follows:
1. AGREEMENT TO BORROW AND LEND. Subject to the terms and conditions of the
Loan Documents, Lender agree to make available to Borrower up to ONE MILLION
DOLLARS ($1,000,000.00). To evidence the Loan, Borrower will execute the
Promissory Note ("Note") attached to this Agreement as Exhibit 1.
2. DISBURSEMENTS. Lender will disburse Funds to the Borrower in accordance
with the following schedule:
2.1. $250,000 on December 13, 1996;
2.2. up to $250,000 on December 30, 1996;
2.3. up to $250,000 on January 15, 1997;
2.4. up to $250,000 on January 31, 1997; and,
2.5. if the entire $1 million has not been disbursed pursuant to
Sections 2.1-2.4 above, the lesser of the balance or $250,000 may be disbursed
on February 15, 1997.
Prior to disbursements pursuant to Sections 2.2 to 2.5, Borrower will fax a
disbursement request (using the Exhibit 3 form) to Lender and to Haligman and
Lottner, P.C.
<PAGE> 2
3. REPAYMENT. As provided in the Note, the Principal Amount, unpaid accrued
interest and any interest premium shall be paid to the Holder at the earlier of
July 1, 1997, or the business day following Borrower's receipt of the proceeds
from the sale of Borrower's securities.
4. WARRANT TO LENDER. Borrower will issue Lender common stock in the
aggregate amount of $672,248.60, which represents 20% of the total amount
($3,361,243) that Lender has advanced to Borrower. This shares will be issued at
completion of the private offering; the per-share exercise price will be the
same as the private offering per-share purchase price.
5. BORROWER'S REPRESENTATION. Borrower hereby represents and warrants that:
5.1. No Additional Advances. Lender has not promised, represented or
committed that it will loan any additional funds to Borrower, or that Lender
will renew or exceed this Loan at its maturity.
5.2. Accurate Financial Statements. The financial statements, business
plan and other information concerning the financial condition of Borrower
provided to Lender ("Financial Statements") is materially true and correct and
accurately depicts the financial condition of Borrower as of the date hereof.
Borrower acknowledges that Lender is making the Loan in reliance upon the
Financial Statements.
5.3. Valid Related Party Transaction. Lender has disclosed its
affiliations to Borrower and its financial interest in this transactions, this
transaction is fair to the Borrower and Borrower's directors (except Mr. William
Becker, Hartford's affiliate) and shareholders have approved this transaction.
Accordingly, the Loan Documents are valid and binding obligations of the
Borrower.
6. BORROWER'S COVENANTS.
6.1. Use of Proceeds. Borrower covenants that the proceeds of the Loan
shall be used by Borrower solely to fund Borrower's corporate operations and the
development of its VSMS Platform. All expenditures and disbursements shall be
authorized and approved by the Borrower's Chief Executive Officer.
6.2. Books and Records. Borrower shall maintain true and proper books,
records, reports and amounts ("Books and Records") of all of Borrower's business
operations and activities. Borrower shall keep such Books and Records at its
principal place of business.
6.3. Access to Books and Records. Borrower shall permit Lender to
examine all of Borrower's Books and Records at any time and to copy or to make
extracts from Books and Records as Lender deems necessary.
6.4. Tax Returns. Tax returns of the Borrower are to be provided to
Lenders upon request anytime during the term of the Loan.
6.5. Notice of Adverse Events. Borrower will immediately notify Lenders
of any event or circumstance which reasonably could be deemed to have a
materially adverse effect on Borrower's financial condition, Borrower's ability
to perform its obligation under the Loan Documents, its ability to sell
securities, or its ability to repay the Note.
2
<PAGE> 3
7. Events of Default. The occurrence of any one or more of the following
events or the existence of one or more of the following conditions shall
constitute an event of default under this Agreement:
7.1. Nonpayment. Failure to pay when due any installment of principal or
interest due under the Note, whether due on the date provided for therein or by
acceleration or otherwise or failure to pay the entire outstanding principal
balance of the Loan, together with all accrued and unpaid interest then
outstanding, on the Maturity date defined in the Note or upon acceleration.
7.2. False Representations. An event of default shall occur if any
representation or warranty made in writing to Lenders by Borrower herein or in
connection with the making of the Loan shall prove at any time to have been
incorrect in any material respect when made.
7.3. Breach of Covenants. An event of default shall also occur if
Borrower fails to comply with any covenant made in the Loan Documents.
8. Remedies for Default. Upon the occurrence of any event of default and at
any time thereafter:
8.1. Acceleration of Maturity. All principal, interest and other amounts
payable under the Note shall, at the option of Lenders, become immediately due
and payable without presentment, demand, protest or other notice of any kind,
all of which Borrower hereby expressly waives.
8.2. Default Interest Rate. The outstanding principal balance of the
Note shall bear interest, payable upon demand, at a rate for each day equal to
eighteen percent (18%) annually (the "Default Interest Rate"). The application
of the Default Interest Rate shall not be interpreted or deemed to extend any
cure period set forth in any Loan Document or otherwise to limit any of Lenders'
remedies under this Agreement or any of the other Loan Documents.
8.3. Other Remedies. Lender may proceed with every remedy available at
law or in equity or provided for in the Loan Documents in such order or sequence
as Lender may determine in its sole discretion, including concurrently,
independently, or successively, and all expenses incurred by Lender in
connection with any remedy shall be deemed indebtedness of Borrower to Lender
including, but not limited to, attorneys' fees incurred by Leader.
9. Borrower not Released. Without affecting any obligation of Borrower
under this Agreement, Lender may renew, extend or otherwise change the terms and
conditions of the Loan, take or release any collateral as security for the Loan.
10. Amendments. No provision or term of the Loan Documents may be amended,
modified, revolted, supplemented, waived or otherwise changed except by a
written instrument duly executed by Borrower and Lender and designated as such.
11. Severability. Whenever possible, each provision of the Loan Documents
shall be interpreted so as to be effective and valid under Illinois law. Should
any provision, covenant or agreement contained in the Loan Documents be deemed
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions of the Loan Documents shall not
be impaired thereby, nor shall the validity, legality or enforceability of any
such defective provision be in any way affected or impaired in any other
Jurisdiction.
3
<PAGE> 4
12. SUCCESSORS AND ASSIGNS BOUND; ASSIGNMENT. The covenants and agreements
contained herein shall bind Borrower, its successors and assigns. This Agreement
may not be assigned by borrower without the prior written consent of Lender.
Subject to the foregoing restriction, this Agreement shall inure to the benefit
of Lender, their successors and assigns.
13. NO THIRD PARTY BENEFITS. This Agreement is made for the sole benefit of
Borrower and Lenders, and their respective successors and assigns, and no other
person or persons shall have any rights or remedies under or by reason of this
Agreement.
14. HEADINGS. The captions and headings of the paragraphs in the Agreement
are for convenience only and are not used to interpret or define the provisions
of the Agreement.
15. CONFLICT. Should any provision of any Loan Document conflict with any
provision of this Agreement, the provision selected by Lender, in their sole
discretion, shall govern and shall be controlling.
16. DEFINED TERMS. All capitalized terms used herein shall have the same
meaning as in the Loan Documents unless expressly defined herein.
17. GOVERNING LAW. The Loan Documents shall be governed by and interpreted
in accordance with the laws of the State of Illinois.
18. COUNTERPARTS. This Agreement may be executed in counterparts and all
such counterparts, as so executed, shall constitute one Agreement, binding upon
all the signatories thereto, notwithstanding that all of the signatories are not
signatories to the original or same counterpart.
TELEHUB COMMUNICATIONS CORP.,
an Illinois corporate
December 10, 1996 By: /s/ Donald H. Sledge
-----------------------------------------
Donald H. Sledge, Chief Executive Officer
HARTFORD HOLDINGS LTD.
a Cayman Islands corporation
December 10, 1996 By: /s/ William W. Becker
-----------------------------------------
William W. Becker, Chairman
4
<PAGE> 5
EXHIBIT 1
TELEHUB COMMUNICATION CORP.
PROMISSORY NOTE #3
US $1,000,000,000 December 10, 1996
TELEHUB COMMUNICATIONS CORP., an Illinois corporation (the "Company"), for
value received, hereby promises to pay to HARTFORD HOLDINGS LTD. (the "Holder")
the sum of ONE MILLION U.S. DOLLARS ($1,000,000.00) (the "Principal Amounts)
together with interest on the outstanding Principal Amounts at the rate of 12.0%
per annum, compounded quarterly, as follows:
1. ADVANCEMENT OF PRINCIPAL AMOUNT. The Principal Amount shall not be
advanced upon execution hereof, but shall only be deemed to have been advanced
as and when funds are provided by Holder to the Company, under the Bridge Loan
Agreement dated December 10, 1996 (the "Bridge Loan"). Upon any disbursement by
the Holder, the Company shall be deemed to have received an advance under this
note in the amount of such disbursement. The aggregate amount of disbursements
shall not exceed the Principal Amounts. The Company acknowledges that all
disbursements shall be made pursuant to the Bridge Loan, and the Company
unconditionally agrees to repay all present and future disbursements.
2. MANDATORY PREPAYMENT. The Principal Amount, any prepaid accrued interest
plus an interest premium of 5% per annum interest on the Principal Amount, shall
be paid to the Holder from the net proceeds from any sale of Company equity or
debt securities. Net proceeds includes all amounts received by Borrower less any
related commissions, brokers' fees and other related costs incurred in
connection with the offer and sale of Borrower's securities. This Mandatory
Prepayment shall be made by the business day following Borrower's receipt of the
proceeds from the sale.
3. MATURITY. If not paid sooner, the entire outstanding Principal Amount
with any unpaid accrued interest and all other sums due hereunder or under any
of the other Loan Documents, shall be paid to the Holder on July 1, 1997.
4. SUBJECT TO LOAN AGREEMENT. This Note evidences the Loan made under, and
is entitled to the benefits of the Bridge Loan, between the Company and the
Holder. Reference is made so the Bridge Loan for provisions relating to default,
Holder's remedies for default and other terms and conditions.
IN WITNESS WHEREOF, the Company has caused this Note to be signed in its name
and on its behalf by its duly authorized officer on the date first above
written.
TELEHUB COMMUNICATIONS CORP.,
an Illinois corporation
By: /s/ Donald H. Sledge
------------------------------------------
Donald H. Sledge, Chief Executive officer
<PAGE> 6
ACTION BY WRITTEN CONSENT IN LIEU OF A MEETING OF
THE BOARD OF DOCTORS OF
TELEHUB COMMUNICATIONS CORP.
The following action is taken by written consent of the Board of Directors of
TELEHUB COMMUNICATIONS CORP., an Illinois corporation (the "Corporation"), in
lieu of a Meeting. BRIDGE LOAN BY HARTFORD. The Corporation requires funding for
development of its Virtual Services Management System ("VSMS") and Hartford
Holdings Ltd. ("Hartford"), a significant Corporation shareholder, has offered
to lend up to $1,000,000 to the Corporation pursuant to a Loan Agreement and
evidenced by Promissory Notes executed by the Corporation. Hartford also will
receive $672.248.60 of additional Corporation common shares, issuable after the
Corporation completes a Private Placement of entity securities.
Hartford is a significant Corporation shareholder and Mr. William W. Becker,
Hartford's principal shareholder, is the Corporation's Chairman. Hartford and
Mr. Becker have disclosed their financial interest in this transaction. The
independent Directors have reviewed this transaction, consider it to be fair to
the Corporation and deem it advisable that this Corporation enter into the Loan
Agreement with Hartford.
Accordingly, the Board of Directors adopt the following resolution:
RESOLVED: That the Corporation approves the Bridge Loan Agreement and
Promissory Notes and that Mr. Sledge, the Corporation's Chief Executive
Officer is authorized to execute the Bridge Loan Agreement and issue the
Promissory Notes on behalf of the Corporation.
Adopted by Board of Directors as of December 10, 1996.
Each of the Corporation's Directors has signed below to evidence consent to the
Board of Directors' adoption of the resolutions dated December 10, 1996:
ABSTAINING /s/ Donald H. Sledge
- ------------------------------------- ---------------------------------------
William W. Becker, Chairman Donald H. Sledge, Vice-Chairman
/s/ Michael G. McLaughlin /s/ John G. Makula
- ------------------------------------- ---------------------------------------
Michael G. McLaughlin John G. Makula
/s/ Barry C. Lescher
- -------------------------------------
Barry C. Lescher
I certify that each of the Corporations directors in office on December 10,
1996, has executed this written consent.
/s/ John G. Makula
---------------------------------------
John G. Makula, Secretary
<PAGE> 7
RATIFICATION BY DISINTERESTED SHAREHOLDERS
ROSEVILLE COMPUTER PROJECTS LIMITED, a Nevis, West Indies corporation
("Roseville"), holds 42.5 % of the issued and outstanding shares of TELEHUB
COMMUNICATIONS CORP., an Illinois corporation ("TELEHUB") and the SLEDGE FAMILY
TRUST ("Sledge"), holds 15% of the issued and outstanding shares of TELEHUB.
Roseville and Sledge have reviewed the proposed transaction whereby Hartford
Holdings Ltd. ("Hartford") the other shareholder of TELEHUB, will loan up to
$1,000,000 TO TELEHUB for operating capital. Hartford and Mr. William W. Becker,
TELEHUB'S Chairman, have disclosed their financial interest in this transaction
to TELEHUB, Roseville and Sledge. Roseville and Sledge also believe the
transaction is fair to TELEHUB and necessary for TELEHUB's continued operations.
Roseville and Sledge hereby approve and ratify the Bridge Loan Agreement
between TELEHUB and Hartford and the issuance of Promissory Notes to Hartford.
SLEDGE FAMILY TRUST ROSEVILLE COMPUTER PROJECTS LIMITED
a Nevis, West Indies corporation
By: /s/ Donald H. Sledge By: /s/
----------------------------- ------------------------------------
Donald H. Sledge, Trustee
<PAGE> 8
EXHIBIT 3
FORM OF DISBURSEMENT REQUEST
TELEHUB COMMUNICATIONS CORPORATION, an Illinois corporation ("TeleHub"), hereby
requests HARTFORD HOLDINGS LTD., a Cayman Islands corporation ("Hartford"), to
make the following disbursement pursuant to the Bridge Loan Agreement between
TeleHub and Hartford:
Amount: $____________________ Disbursement Date: _____________________
Summary of Proposed Expenditures:
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
TeleHub acknowledges that all amounts disbursed pursuant to this request are
governed by the Bridge Loan Agreement and associated Promissory Note.
TELEHUB COMMUNICATIONS CORP.,
an Illinois corporation
Date: By:/s/ Donald H. Sledge
-------------------------- -----------------------------------------
Donald H. Sledge, Chief Executive Officer
- --------------------------------------------------------------------------------
Fax to: Hartford Holdings Ltd. Michael L. Glaser
c/o William W. Becker Haligman & Lottner, P.C.
(809) 945-0600 (303) 292-1300
<PAGE> 1
EXHIBIT 10.17
REIMBURSEMENT & ASSIGNMENT OF RECOVERY
REIMBURSEMENT AND ASSIGNMENT OF RECOVERY ("Assignment"), dated November
30, 1996, between TeleHub Communications Corp., an Illinois corporation
("TeleHub"), Hartford Holdings Ltd., a Cayman Islands corporation ("Hartford"),
and Dovedale Investments Ltd., a Cayman Islands corporation ("Dovedale").
WHEREAS, TeleHub had intended to enter into a business combination with
CAM-NET Communications Network, Inc., a Canadian Federal corporation
("CAM-NET"), under an Agreement dated as of August 31, 1996. CAM-NET required
interim financing until the proposed business combination would be
consummated. After being approached by TeleHub through Hartford, Dovedale
agreed to invest $3,000,000 in CAM-NET if Hartford, a significant TeleHub
shareholder, guaranteed Dovedale's financing to CAM-NET. TeleHub, in turn,
agreed to indemnify Hartford for any amounts paid to Dovedale pursuant to
Hartford's guarantee. Dovedale proceeded to invest $600,000 in CAM-NET as the
first stage of the proposed $3,000,000 investment. The proposed business
combination between TeleHub and CAM-NET was subsequently terminated, and
Dovedale has not recovered its $600,000 investment in CAM-NET. Dovedale now
seeks reimbursement from Hartford, which, in turn, seeks indemnification from
TeleHub.
NOW THEREFORE, in consideration of the mutual promises contained herein,
the receipt and sufficiency of which are hereby acknowledged, the parties agree:
1. HARTFORD REIMBURSEMENT OF DOVEDALE. Hartford will pay Dovedale $600,000
as reimbursement of Dovedale's unrecovered investment in CAM-NET.
2. TELEHUB PAYMENT TO HARTFORD. TeleHub agrees to issue a $600,000
promissory note to Hartford pursuant to its indemnification obligation.
3. DOVEDALE RELEASE. Dovedale hereby releases Hartford and TeleHub from any
further obligation on the guarantee.
4. DOVEDALE CLAIMS AGAINST CAM-NET. Dovedale will diligently prosecute its
claim against CAM-NET for recovery of its $600,000 investment in CAM-NET.
Dovedale must pay all costs, legal fees and other expenses incurred in
prosecuting these claims.
5. ASSIGNMENT OF RECOVERY. Dovedale hereby assigns to TeleHub the first
$600,000 that Dovedale recovers from CAM-NET. Such payment will be made within
10 business days after receipt from CAM-NET. Dovedale will not settle its
claims against CAM-NET for less than $600,000 without TeleHub's written
consent. If the recovery exceeds $600,000, Dovedale shall retain the remainder
after repaying TeleHub the first $600,000. If Dovedale recovers less than
$600,000, then TeleHub is entitled to all amounts received as well as a
certified copy of the judgement or settlement agreement.
6. GOVERNING LAW. This Assignment shall be governed by and construed and
enforced in accordance with the laws of the State of Illinois.
<PAGE> 2
7. ARBITRATION OF DISPUTES. All disputes concerning this Assignment will be
submitted to arbitration in Chicago, Illinois, in accordance with the Rules of
the American Arbitration Association. The Arbitrator's decisions must be
delivered in writing accompanied by written findings of fact and conclusions of
law. Any competent court may enter judgment upon the Arbitrator's awards. The
prevailing party, as part of its damages, shall be entitled to recover its
legal fees and expenses incurred in such action from the losing party.
8. ASSIGNMENT. TeleHub may assign its rights under Section 5 to any person
and all covenants and agreements thereunder shall inure to the benefit of such
assignee. Neither this Assignment nor any rights or duties hereunder may be
assigned or delegated by either Dovedale or Hartford.
9. AMENDMENTS. No provision of this Assignment shall be altered, amended,
revoked or waived, except by an instrument in writing, signed by TeleHub and
Hartford and Dovedale.
10. EXECUTION IN COUNTERPARTS. This Assignment may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11. ENTIRE AGREEMENT. This Assignment sets forth the entire agreement and
understanding of the parties and supersedes all prior understandings,
agreements or representations by or between the parties, whether written or
oral.
IN WITNESS WHEREOF, the parties have executed this Assignment as of the
date and year set forth above.
TELEHUB: TELEHUB COMMUNICATIONS CORP.,
an Illinois corporation
By:
-----------------------------------------
Donald H. Sledge, Chief Executive Officer
HARTFORD: HARTFORD HOLDINGS LTD.,
a Cayman Islands corporation
By: /s/ William W. Becker
-----------------------------------------
William W. Becker, Chairman
DOVEDALE: DOVEDALE INVESTMENTS LTD.,
a Cayman Islands corporation
By: /s/ Peter Wightman
-----------------------------------------
Peter Wightman, Director
2
<PAGE> 3
ASSIGNMENT
TeleHub Network Services Corporation, an Illinois corporation formerly
known as TeleHub Communications Corp. ("TNS"), hereby assigns to TeleHub
Communications Corporation, a Nevada corporation ("TCC"), all of TNS's rights
under Section 5 of the Reimbursement and Assignment of Recovery between TNS,
Hartford Holdings Ltd. and Dovedale Investments Ltd., dated November 30, 1996.
TELEHUB: TELEHUB COMMUNICATIONS CORP.,
an Illinois corporation
February 20, 1997 By: /s/ Donald H. Sledge
-----------------------------------------
Donald H. Sledge, Chief Executive Officer
<PAGE> 1
EXHIBIT - 10.18
SECURED PROMISSORY NOTE
$250,000.00 November __, 1997
Walnut Creek, California
The undersigned, RICHARD M. HARMON, an individual residing in California
("Maker"}, promises to pay TELEHUB COMMUNICATIONS CORPORATION, a Nevada
corporation ("Holder"), the Principal Sum of TWO HUNDRED FIFTY THOUSAND DOLLARS
($250,000.00), together with interest thereon (at the annual rate specified
below), as follows.
1. INTEREST RATE. The Principal Sum shall bear interest at the annual rate
of 1% over the prime rate charged from time to time by Bank of America, San
Francisco office, to its most creditworthy borrowers, but in no event greater
than the highest legal rate chargeable by a non-exempt lender in a non-exempt
transaction. Interest shall be computed on the basis of a 360 day year. This
interest rate shall not be adjusted more frequently than quarterly.
2. REPAYMENT. All sums due hereunder, including principal, interest,
charges and fees, shall be payable in full on the earlier of: (i) 90 days after
termination of Maker's employment with Holder; or (ii) two years from the date
of this Note. Until the due date of this Note, no principal or interest shall be
payable. Maker may prepay the Principal sum and any accrued interest, in whole
or part without penalty or prepayment charge.
3. LATE PAYMENT INTEREST RATE. If repayment is not made within 30 days
after the due date, the interest rate from such date shall be the highest rate
allowed by law for a non-exempt transaction.
4. SECURITY. Repayment of this Note is secured by Maker's warrant to
purchase Holder's common shares pursuant to a Pledge Agreement. If this Note is
not repaid within 30 days after its due date, the Holder may, In accordance with
the Pledge Agreement, use this security and apply in satisfaction of Maker's
obligations hereunder. Holder shall look only to this security for payment of
all amounts due under this Note. No deficiency judgment shall be had against
Maker in the event that the security is insufficient to fully pay all amounts
due under this Note.
5. COLLECTION COSTS. Maker agrees to pay all court costs and attorneys fees
if counsel is engaged to assist in the collection of this Note after a default
hereunder and if any action is commenced to construe or enforce the terms of
this Note, the prevailing party shall be entitled to recover from the losing
party its reasonable attorneys' fees and court costs.
6. PERSONAL OBLIGATION OF MAKER. Maker and Holder agree that the
obligations of the Maker hereunder are individual as to him, so the Maker's
spouse shall neither be made a party to any action commenced hereunder nor shall
such spouse be liable for any obligations of the Maker imposed by this Note.
MAKER:
/s/ Richard M. Harmon
----------------------------------
Richard M. Harmon
<PAGE> 2
RESOLUTIONS OF THE BOARD OF DIRECTORS OF
TELEHUB COMMUNICATIONS CORPORATION
A meeting of the Board of Directors (the "Board") of TeleHub Communications
Corporation, a Nevada corporation (the "Corporation"), was held on November 25,
1997.
Attending in person was Director Sledge. Attending telephonically were Directors
Becker, McLaughlin, Lescher and Slevin.
LOAN TO MR. RICHARD HARMON. Mr. Richard Harmon, the Corporation's Chief
Financial Officer and corporate Secretary, has requested a $250,000 personal
loan from the Corporation. This loan would be evidenced by a two-year
promissory note ("Note") bearing interest at 1% over Bank of America's prime
rate, adjusted quarterly. Mr. Harmon has agreed to pledge his warrant to
purchase 150,000 common shares of the Corporation as security for the Note. If
the Note is not repaid by its due date, the Corporation agrees to look solely
to this collateral for repayment of the Note.
Mr. Harmon has fully disclosed his financial interest in this transaction. The
Board reviewed this proposed transaction, considers it to be fair to the
Corporation and deems it advisable that the Corporation make this loan to Mr.
Harmon. Accordingly, the Board adopts the following Resolutions:
RESOLVED: The Corporation approves the proposed $250,000 loan to Mr.
Harmon, approves the Note, Pledge Agreement and other documents relating
to this loan;
RESOLVED: Mr. Sledge, the Corporation's Chief Execute Officer, is
authorized to execute the Pledge Agreement and other loan documents and
issue a check for the loan amount;
RESOLVED: The Corporation's officers are directed to take any actions
necessary to effectuate these resolutions.
Adopted by Board of Directors as of November 25, 1997.
Approved and signed: /s/ Donald H. Sledge
---------------------------------------
Donald H. Sledge, Vice-Chairman
<PAGE> 3
PLEDGE AGREEMENT
This PLEDGE AGREEMENT (the "Agreement") is made and executed November _,
1997, by Richard M. Harmon (the "Pledgor"), for the benefit of TeleHub
Communications Corporation, a Nevada Corporation ("Secured Party").
RECITALS
WHEREAS, Pledgor has borrowed $250,000 from Secured Party as evidenced by
the Secured Promissory Note dated November __, 1997 (the "Note", attached as
Exhibit A);
WHEREAS, Pledgor holds a warrant ("Warrant") to purchase 150,000 of Secured
Party's common shares ("Shares") for $7.50 per Share;
WHEREAS, to secure payment of the Note, Pledgor pledges both the Warrant
and the Shares issuable upon Warrant exercise (the "Warrant Shares") to Secured
Party.
Now, THEREFORE, in consideration of the mutual benefits arising from this
Agreement, Pledgor and Secured Party hereby agree:
1. PLEDGE OF WARRANT AND SHARES. The Pledgor hereby pledges and grants to
Secured Party a security interest in the following collateral (the "Pledged
Collateral");
1.1. the Warrant;
1.2. the Warrant Shares and the certificates representing the Warrant
Shares;
1.3. all the right, title and interest which Pledgor now has or may
hereafter acquire in and to any stock, cash, instruments or other property
received as a result of his ownership of the Warrant or the Warrant Shares,
whether by dividend, stock split, recapitalization, liquidation or other
distribution;
1.4. all new, substituted and additional shares or other securities
issued to Pledgor by reason of a stock dividend, stock split,
reclassification, readjustment, reorganization or similar changes declared
or made in the Secured Party's capital structure (including without
limitation, securities of other issuers received in exchange for Pledged
Collateral pursuant to any merger, consolidation or other reorganization);
and
1.5. all proceeds or substitutions of the foregoing collateral.
Pledgor represents and warrants that he has full right and authority to
pledge the Pledged Collateral. This Agreement shall create a continuing security
interest in the Pledged Collateral and shall remain in full force and effect
until payment in full of the Note.
2. DELIVERY OF PLEDGED COLLATERAL. Pledgor has executed the following
documents ("Assignment Documents") in blank:
2.1. a Notice of Exercise Form (Exhibit B);
2.2. a Warrant Assignment Form (Exhibit C); and
2.3. a Stock Power.
<PAGE> 4
Pledgor will deliver the original Assignment Documents, Note and Warrant to
Secured Party. Upon acquisition (direct or indirect) of any collateral described
in Sections 1.3-1.5, Pledgor will immediately deliver to Secured Party any
certificates, instruments or other documents necessary to effectuate Secured
Party's security interest.
3. VOTING RIGHTS. Pledgor may exercise any voting rights with respect to
the Pledged Collateral.
4. WARRANT EXERCISE. If Pledgor exercises the Warrant in accordance with
Warrant Section 2.1, then Secured Party will hold the Warrant Shares.
5. CASHLESS EXERCISE OF WARRANT. Warrant section 2.2(a) permits "cashless"
exercise, whereby Pledgor may acquire a portion of the Warrant Shares without
payment in accordance with a formula based on the excess of the Share market
price over the Warrant exercise price. Prior to repayment of the Note, the
following requirements govern Pledgor's cashless exercise of the Warrant:
5.1. The difference between the Aggregate Fair Market Value and the
Aggregate Exercise Price (as defined in Warrant section 2.2(a)) must exceed
all amounts owed on the Note at the time of the proposed cashless exercise
("NB");
5.2. The number of Warrant Shares issued to Pledgor upon cashless
exercise will be computed as follows:
X = B-(A+NB)
--------
Y
where X, Y, B and A have the meanings specified in Warrant section 2.2(a).
Upon cashless exercise and delivery of the Warrant Shares in compliance with
this section, the Note will be deemed repaid.
6. TRANSFER OF PLEDGED COLLATERAL. Pledgor may sell, transfer, assign,
pledge, dispose or in any way alienate ("Transfer") the Pledged Collateral only
if the Transfer results in full repayment of the Note. In connection with such
Transfer, Pledgor will utilize escrow or similar arrangements that, in Secured
Party's sole discretion, ensure full repayment of the Note.
7. APPLICATION OF PLEDGED COLLATERAL TO NOTE BALANCE. If the Note has not
been repaid by its due date, Pledgor permits the Secured Party, in its sole
discretion, to:
7.1. Transfer the Pledged Collateral; or
7.2. Amend the Warrant to reduce the maximum number of Warrant Shares
by a number of Shares equal to the Note Balance divided by the difference
between Fair Market Value and the Warrant exercise price.
Secured Party will notify Pledgor of the action it has taken under this Section
and the Note will be deemed repaid in full.
8. REPAYMENT. Upon repayment in full of the Note, Pledgor shall be entitled
to the return, upon Pledgor's request and at Pledgor's expense of any remaining
Pledged Collateral in Secured Party's possession.
2
<PAGE> 5
9. WAIVER OF NOTICE. Pledgor agrees that Secured Party shall be under no duty
or obligation whatsoever to make or give any presentments, demands for
performance, notices of nonperformance, protests, notice of protest or notices
of or any obligations or evidences of indebtedness at any time in connection
with any part of the Pledged Collateral or in connection with other obligations
secured hereby, except that Secured Party shall notify Pledgor about any action
under Section 7.
10. SEVERABILITY. The parties desire and intend that the provisions of this
Agreement shall be enforced to the fullest extent permissible under the laws and
public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular provision or portion of this Agreement shall be
adjudicated to be invalid or unenforceable, this Agreement shall be deemed
amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such deletion to apply only with respect to the operation of such
Section in the particular jurisdiction in which such adjudication is made.
11. PERFORMANCE OF NECESSARY ACTS. Pledgor agrees to perform any further acts
and to execute and deliver any additional documents which may be reasonably
necessary to carry out the provisions of this Agreement.
12. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of California.
13. INJUNCTIVE RELIEF. Upon a breach or threatened breach of any of the
provisions of this Agreement, any party shall be entitled to equitable relief
preventing such breach and specifically enforcing those provisions. Nothing
herein shall be construed as prohibiting a party from pursuing any other
remedies for such breach or threatened breach. The prevailing party shall be
entitled to recover its legal fees and expenses incurred in such action from the
losing party.
14. ARBITRATION OF DISPUTES. Except as provided in Section 13, all disputes
concerning this Agreement will be submitted to binding arbitration in Walnut
Creek, California in accordance with the Rules of the American Arbitration
Association. The Arbitrator's decisions must be delivered in writing accompanied
by written findings of fact and conclusions of law. Any competent court may
enter judgment upon the Arbitrator's awards. The prevailing party, as part of
its damages, shall be entitled to recover its legal fees and expenses incurred
in such action from the losing party.
15. NO WAIVER. A waiver of a breach of any provision of this Agreement shall
not operate or be construed as a waiver of any subsequent or other breach.
16. AMENDMENTS. No provision of this Agreement shall be altered, amended,
revoked or waived, except by an instrument in writing signed by the Pledgor and
Secured Party.
17. BINDING EFFECT. Except as otherwise provided herein, this Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective legal representatives, heirs, successors and assigns.
3
<PAGE> 6
18. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. A facsimile signature
shall constitute an original signature.
19. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and
understanding of the parties and supersedes all prior understandings, agreements
or representations by or between the parties, whether written or oral.
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement.
PLEDGOR: /s/ Richard M. Harmon
----------------------------------------------
Richard M. Harmon
SECURED PARTY TELEHUB COMMUNICATIONS CORPORATION,
a Nevada corporation
By: /s/ Donald H. Sledge
----------------------------------------------
Donald H. Sledge, Chief Executive Officer
4
<PAGE> 1
EXHIBIT - 10.19
PROMISSORY NOTE
Cdn $ 157,500 February 13, 1998
Gurnee, Illinois
FOR VALUE RECEIVED, Herbert H. SWINBURNES, Jr. and Carol S. Swinburne
(collectively, the "SWINBURNES"), each jointly and severally promise to pay to
the order of TeleHub Communications Corporation, a Nevada corporation, together
with its successors and assignees (the "PAYEE"), the aggregate principal sum of
one hundred fifty-seven thousand and five hundred Canadian dollars (Cdn$157,500)
(the "PRINCIPAL"), interest-free, on the first anniversary of this Note (the
"PAYMENT DATE"), which Payment Date may be extended for an additional term, not
to exceed one year, at the sole discretion and upon the written consent of
Payee.
1. Method of Payment. All payments of Principal shall be payable in lawful
currency of Canada at such place as Payee may from time to time designate in
writing, and, in the absence of such direction, at TeleHub Communications
Corporation, 2033 N. Main Street, Suite 340, Walnut Creek, California 94596.
2. Default. The occurrence of any one or more of the following events shall
constitute an Event of Default: (a) any failure to make due and punctual payment
of any installment of Principal on this Note as and when due and payable and
continuance of any such failure for a period of ten days; (b) any failure of the
undersigned to pay the principal of or any premium or installment of interest on
any other indebtedness for borrowed money for which the undersigned, either
alone or jointly with others, is or may be liable or the happening of any other
event in respect of any such other indebtedness which shall have resulted in
such indebtedness having been declared due and payable prior to the stated
maturity thereof; (c) the death of either of the undersigned; (d) the
commencement of any proceedings by or against either of the undersigned under
the United States Bankruptcy Code or any similar federal or state law of the
United States, Canada or any other jurisdiction; (e) the appointment of a
receiver, trustee, liquidator, or conservator of either of the undersigned or of
the whole or any substantial part of the property of either of the undersigned;
(f) the commencement of foreclosure or other proceedings, whether by judicial
action, self-help, repossession, or any other method, by any creditor of
either of the undersigned against any substantial part of the property of either
of the undersigned; (g) the occurrence of any other event which, in Payee's
opinion, constitutes a material adverse effect on the business operations or
financial condition of either of the undersigned; (h) the termination for or
without cause of Herbert H. Swinburne's employment with TeleHub Network Services
Corporation or TeleHub Communications Corporation or any subsidiary, parent, or
affiliate of either TeleHub entity; (i) the sale of the Swinburnes' property
located at 2112 Pine View Drive, Oakville, Ontario, Canada, L6H5M4 (the "REAL
ESTATE"); or (j) the undersigned's failure to perform or default in the
performance of any covenant, condition, or agreement contained in this Note.
<PAGE> 2
3. Remedies Upon an Event of Default. (a) If an Event of Default shall
occur, the outstanding Principal shall, at Payee's option, become immediately
due and payable without presentment, demand, notice, declaration, acceleration,
protest or other requirements of any kind, all of which are hereby expressly
waived by the undersigned, and Payee shall have all of the rights and remedies
conferred upon Payee at law or in equity, including, but not limited to, Payee's
right to set off any amount due or to become due to Payee, by virtue of this
Note or any other obligation of the undersigned, against any other amount at any
time due from Payee to the undersigned, and against any claim of the undersigned
against Payee, including but not limited to, any bonuses, salary,
reimbursements, or stock grants, options, or warrants, claimed due from Payee by
either or both of the Swinburnes.
(b) If this Note is placed in the hands of an attorney for collection after
maturity, or upon default, or if proceedings at law, in equity, or bankruptcy,
receivership or other legal proceedings are instituted or threatened in
connection herewith, or if Payee is made a party to any such proceeding, or if
this Note is placed in the hands of an attorney to enforce any of the rights or
requirements contained herein or other instruments given as security for, or
related to, the indebtedness evidenced hereby, the undersigned shall pay all
costs of collecting or attempting to collect this Note, or of protecting or
enforcing such rights, including without limitation, attorneys' fees (whether or
not suit is brought), in addition to all Principal and other amounts payable
hereunder.
4. Waiver. If Payee (a) grants any extension of time or forbearance with
respect to the payment of any of the indebtedness evidenced by this Note; (b)
takes any security for the payment hereof; (c) waives or fails to exercise any
right granted herein; or (d) agrees or consents that any of the agreement,
obligations, terms, provisions and conditions hereof may be amended or modified,
then and in any such event, such act or omission to act shall not release,
discharge, modify, change or affect the liability under this Note, and any such
act or omission to act shall not release the undersigned under any agreement,
obligation, term, provision or condition of this Note, nor preclude Payee from
exercising any right, power, or privilege herein granted or otherwise. No right
or remedy of Payee shall be exclusive of, but shall be in addition to every
other right or remedy now or hereafter existing at law or in equity. No delay in
exercising, or omission to exercise, any right or remedy accruing on any default
shall impair any such right or remedy, or shall be construed to be a waiver of
any such right or remedy, or acquiescence in such default, nor shall it affect
any subsequent default of the same or a different nature. The undersigned hereby
waives and renounces any and all homestead exemption rights and the benefits of
all valuation and appraisement privileges as against this debt or any renewal or
extension hereof.
5. Optional Prepayment. All or part of the outstanding Principal amount
evidenced by this Note may be prepaid at any time and from time to time without
premium or penalty.
6. Waiver of Notice of Dishonor, Etc. The undersigned and all endorsers,
guarantors and all persons liable or to become liable on this Note severally
waive presentment for payment, protest and demand, notice of dishonor, notice of
demand, notice of protest and notice of nonpayment.
Swinburne Promissory Note
2 of 4
<PAGE> 3
7. Limitations on Liens. Without the Payee's prior written consent, the
undersigned will not create, incur, or suffer to exist any lien, pledge, charge,
privilege, security interest, mortgage, hypothecation or other encumbrance
(collectively, the "LIENS") upon the undersigned's right, title, and interest in
the Real Estate; provided, however, that the following Liens shall be permitted:
(a) Liens existing on the Real Estate on the date of this Note;
(b) Liens imposed by governmental authorities for taxes, assessments, or
other charges not yet subject to penalty or which are being contested in good
faith and by appropriate proceedings;
(c) statutory liens of carriers, warehousemen, mechanics, materialmen,
landlords, repairmen or other like Liens arising by operation of law provided
that the underlying obligations are not overdue for a period of more than 30
days; and
(d) easements, rights-of-way, zoning, similar restrictions, and other
similar encumbrances or title defects which, singly or in the aggregate, do not
in any case materially detract from the value of the Real Estate.
8. Obligations and Rights of Successors. This Note and all obligations and
rights hereunder shall be binding upon and inure to the benefit of the
respective heirs, administrators, executors, successors and assigns of the
undersigned and Payee.
9. Choice of Law. This Note shall be governed by and construed under the
laws of the State of Illinois without giving effect to the conflict of laws
provisions thereof.
10. Modification and Amendments. No modification, waiver, estoppel,
amendment, discharge or change of this Note or any related instrument shall be
valid unless the same is in writing and signed by the party against which the
enforcement of such modification, waiver, estoppel, amendment, discharge or
change is sought.
11. Power of Attorney. The undersigned hereby authorizes, irrevocably, any
attorney of any Court of Record to appear for the undersigned in such Court if
this Note is not paid when due, and at any time thereafter, to confess judgment,
without process, in favor of Payee, for such amount as may appear to be due and
unpaid thereon, together with reasonable costs of collection, including
reasonable attorney's fees, and to waive and release all errors which may
intervene in any such proceeding, and consent to immediate execution upon such
judgment, hereby ratifying and confirming all that said attorney may do by
virtue hereof.
12. Severability. If any provision of this Note is held by a court or
arbitrator of competent jurisdiction not enforceable to its full extent, then
such provision shall be enforced to the maximum extent permitted by law, and
such scope may be modified by such court or arbitrator accordingly, and the
whole of such provision shall not thereby fail, but the scope of such provision
shall be curtailed only to the extent necessary to conform to the law.
Swinburne Promissory Note
3 of 4
<PAGE> 4
PRIOR TO SIGNING THIS NOTE, THE UNDERSIGNED HAVE READ AND UNDERSTOOD ALL THE
PROVISIONS OF THIS NOTE. THE UNDERSIGNED AGREE TO THE TERMS OF THE NOTE AND
ACKNOWLEDGE RECEIPT OF A COMPLETED COPY OF THE NOTE.
IN WITNESS WHEREOF, the undersigned have executed and delivered this Note
as of the date first above written.
Telehub Communications Corporation:
/s/ Don Sledge /s/ Herbert H. Swinburne, Jr.
- ---------------------------- -------------------------------------
Don Sledge Herbert H. Swinburne, Jr.
/s/ Carol S. Swinburne
-------------------------------------
Carol S. Swinburne
Swinburne Promissory Note
4 of 4
<PAGE> 1
TELEHUB COMMUNICATIONS CORPORATION
(Commission File No. 33- )
EXHIBIT 21: SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
Subsidiary Name Jurisdiction of Registrant
- --------------- Incorporation Ownership
----------------- --------------------
<S> <C> <C>
TeleHub Network Services Corporation Illinois 100%
TeleHub Technologies Corporation Nevada 100%
TeleHub Leasing Corporation Nevada 100%
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of our
report, which includes an explanatory paragraph that discusses substantial
doubt about the Company's ability to continue as a going concern, dated January
16, 1998 on our audits of the financial statements of TeleHub Communications
Corporation. We also consent to the reference to our firm under the caption
"Experts".
PricewaterhouseCoopers LLP
San Francisco, California
August 12, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
REVIEWED FINANCIAL STATEMENTS FOR THE 3 MONTH PERIOD ENDED MARCH 31, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,029,636
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,243,535
<PP&E> 20,531,022
<DEPRECIATION> (1,734,144)
<TOTAL-ASSETS> 28,094,720
<CURRENT-LIABILITIES> 7,704,622
<BONDS> 0
0
15,494,079
<COMMON> 22,612,217
<OTHER-SE> (28,077,173)
<TOTAL-LIABILITY-AND-EQUITY> 28,094,720
<SALES> 3,006,601
<TOTAL-REVENUES> 3,006,601
<CGS> 0
<TOTAL-COSTS> 10,199,183
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 299,480
<INCOME-PRETAX> (7,393,925)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,393,925)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,393,925)
<EPS-PRIMARY> (0.59)
<EPS-DILUTED> (0.59)
</TABLE>
