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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 25, 1999
REGISTRATION NO. 333-
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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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METROMEDIA FIBER NETWORK, INC.
(Exact name of Registrant as specified in its charter)
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DELAWARE 4813 11-3168327
(State or other jurisdiction (Primary Standard Industrial (IRS Employer
of Classification Code Number) Identification
incorporation or organization) No.)
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ONE NORTH LEXINGTON AVENUE
WHITE PLAINS, NY 10601
914-421-6700
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
STEPHEN A. GAROFALO
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
METROMEDIA FIBER NETWORK, INC.
ONE NORTH LEXINGTON AVENUE
WHITE PLAINS, NY 10601
914-421-6700
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copies to:
DOUGLAS A. CIFU, ESQ.
JAMES M. DUBIN, ESQ.
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019-6064
212-373-3000
APPROXIMATE DATE OF PROPOSED SALE OF THE SECURITIES 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. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PER UNIT PRICE (1) REGISTRATION FEE
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10% Series B Senior Notes Due 2008.... $650,000,000 100% $650,000,000 $180,700
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 of the Securities Act of 1933.
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, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
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SUBJECT TO COMPLETION, DATED JANUARY 25, 1999
PRELIMINARY PROSPECTUS
METROMEDIA FIBER NETWORK, INC.
OFFER TO EXCHANGE $650,000,000 OF ITS
10% SERIES B SENIOR NOTES DUE 2008
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT
FOR $650,000,000 OF ITS OUTSTANDING
10% SERIES A SENIOR NOTES DUE 2008
TERMS OF THE EXCHANGE OFFER
- -- It expires at 5:00 p.m., New York City time, on , 1999, unless
extended.
- -- It is subject to certain customary conditions, which we may waive.
- -- All outstanding notes that are validly tendered and not withdrawn will be
exchanged.
- -- Tenders of outstanding notes may be withdrawn at any time prior to the
expiration of the Exchange Offer.
- -- We will not receive any proceeds from the Exchange Offer.
- -- The terms of the exchange notes we will issue in the Exchange Offer are
substantially identical to those of the outstanding notes, except that
certain transfer restrictions and registration rights relating to the
outstanding notes will not apply to the exchange notes.
Each broker-dealer that receives exchange notes for its own account pursuant
to the Exchange Offer may be deemed to be an "underwriter" within the meaning of
the Securities Act of 1933, as amended (the "Securities Act"), and must
acknowledge that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such notes. 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. Broker-dealers may use this Prospectus in
connection with resales of exchange notes received in exchange for the
outstanding notes where the outstanding notes were acquired by such
broker-dealers as a result of market-making activities or other trading
activities. We have agreed that, for a period of 180 days after the consummation
of the Exchange Offer, we will make this Prospectus available to any
broker-dealer for use in connection with any such resale. Please refer to the
section in this Prospectus entitled "Plan of Distribution."
BEFORE PARTICIPATING IN THIS EXCHANGE OFFER PLEASE REFER TO THE SECTION IN THIS
PROSPECTUS ENTITLED "RISK FACTORS" COMMENCING ON PAGE 15.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE COMMISSION HAS
APPROVED THE NOTES TO BE DISTRIBUTED IN THE EXCHANGE OFFER, NOR HAVE ANY OF
THESE ORGANIZATIONS DETERMINED THAT THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is , 1999.
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TABLE OF CONTENTS
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SUMMARY.................................................................................................... 3
RISK FACTORS............................................................................................... 15
USE OF PROCEEDS............................................................................................ 29
CAPITALIZATION............................................................................................. 30
SELECTED CONSOLIDATED FINANCIAL DATA....................................................................... 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................... 33
BUSINESS................................................................................................... 39
MANAGEMENT................................................................................................. 59
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................................. 66
SECURITY OWNERSHIP......................................................................................... 70
THE EXCHANGE OFFER......................................................................................... 72
DESCRIPTION OF THE EXCHANGE NOTES.......................................................................... 83
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS........................................................... 118
PLAN OF DISTRIBUTION....................................................................................... 122
LEGAL MATTERS.............................................................................................. 122
EXPERTS.................................................................................................... 123
AVAILABLE INFORMATION...................................................................................... 123
DOCUMENTS INCORPORATED BY REFERENCE........................................................................ 124
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................................................. F-1
GLOSSARY................................................................................................... A-1
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PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
BECAUSE IT IS A SUMMARY, IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU
SHOULD CONSIDER BEFORE PARTICIPATING IN THE EXCHANGE OFFER. YOU SHOULD READ THE
ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE SECTION ENTITLED "RISK FACTORS" AND
THE FINANCIAL STATEMENTS AND THE RELATED NOTES TO THOSE STATEMENTS INCLUDED IN
THIS PROSPECTUS. EXCEPT AS OTHERWISE REQUIRED BY THE CONTEXT, REFERENCES IN THIS
PROSPECTUS TO "WE," "US," THE "ISSUER" OR THE "COMPANY" REFER TO THE COMBINED
BUSINESS OF METROMEDIA FIBER NETWORK, INC. AND ALL OF ITS SUBSIDIARIES. THE TERM
"YOU" REFERS TO PROSPECTIVE INVESTORS IN THE EXCHANGE NOTES (AS DEFINED). ALL
SHARE AND PER SHARE INFORMATION IN THIS PROSPECTUS GIVES RETROACTIVE EFFECT TO
THE TWO-FOR-ONE STOCK SPLITS THAT BECAME EFFECTIVE ON AUGUST 28, 1998 AND
DECEMBER 22, 1998, OF THE SHARES OF CLASS A AND CLASS B COMMON STOCK OF THE
COMPANY (AS DEFINED), UNLESS OTHERWISE INDICATED IN THIS PROSPECTUS.
THE EXCHANGE OFFER
On November 25, 1998, we completed the private offering of $650,000,000
aggregate principal amount of 10% Series A Senior Notes Due 2008 (the "Initial
Notes"). In connection with this private offering, we entered into a
registration rights agreement (the "Registration Rights Agreement") with the
initial purchasers of the Initial Notes in which we agreed, among other things,
to deliver this Prospectus to you and to complete an exchange offer for the
Initial Notes on or prior to June 23, 1999. Pursuant to the Registration Rights
Agreement, we are offering to exchange $650,000,000 aggregate principal amount
of our 10% Series B Senior Notes Due 2008, which have been registered under the
Securities Act (the "Exchange Notes"), for a like aggregate principal amount of
our Initial Notes (the "Exchange Offer"). You are entitled to exchange your
Initial Notes for Exchange Notes with substantially identical terms in the
Exchange Offer. You should read the discussions under the headings "The Exchange
Offer" and "Description of the Exchange Notes" for further information regarding
the Exchange Offer and the Exchange Notes.
THE COMPANY
GENERAL
We are a facilities-based provider of technologically advanced,
high-bandwidth, fiber optic communications infrastructure to communications
carriers and corporate/government customers in the United States. We focus our
operations on domestic intracity fiber optic networks in clusters of Tier I
cities throughout the United States. We currently operate a high-bandwidth fiber
optic communications network in New York and within the next two quarters expect
to operate similar networks in Philadelphia and Washington, D.C. We have also
begun engineering and constructing networks in Chicago, San Francisco and Boston
and within the next two years, we also plan to complete an expansion into five
additional markets including Los Angeles, Seattle, Dallas, Houston and Atlanta.
We expect that our domestic intracity networks will ultimately encompass
approximately 810,000 fiber miles covering approximately 1,896 route miles.
We have also built or obtained intercity fiber optic capacity to link
certain of our intracity networks. We expect to have operational a 241 route
mile network from New York to Washington, D.C. during the first quarter of 1999,
and when finally complete, as currently planned, we expect that this network
will cover approximately 180,000 fiber miles. We have also obtained rights for
fiber optic capacity with other facilities-providers and obtained fiber optic
capacity linking certain of the metropolitan areas (New York--Chicago, New
York--Boston, Chicago--Seattle--Portland) in which we plan to construct
intracity networks, except in Portland.
In addition, we have entered into a joint venture with a U.K.
telecommunications company to connect our New York network to London and we have
announced that we intend to form a joint venture to construct a high-bandwidth
fiber optic network connecting 13 major cities in Germany and
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obtain certain additional fiber optic capacity in Western Europe. Please refer
to the sections in this Prospectus entitled "Business" and "Risk Factors--Risks
Associated with Growth Strategy; Management of Expansion."
We believe that the market for our services in these areas is characterized
by significant and growing demand for, and limited supply of, fiber optic
capacity. To meet our customers' demand, we tailor the amount of fiber capacity
leased to the needs of our customers. Generally, customers lease fiber optic
capacity from us and connect their own transmission equipment to the leased
fiber, thereby obtaining a high-bandwidth fixed-cost, secure communications
alternative to the metered communications services offered by traditional
providers. In addition, we believe that we have installation, operating and
maintenance cost advantages per fiber mile relative to our competitors because
we generally install 432 fibers and may install as many as 864 fibers per route
mile as compared to a generally lower number of fibers in existing competitive
networks.
We are focused on providing our broadband communications infrastructure to
two main customer groups located in selected Tier I markets: communications
carriers and corporate/government customers. Our targeted carrier customers
include a broad range of communications companies such as:
- incumbent local exchange carriers ("ILECs"),
- competitive local exchange carriers ("CLECs"),
- long distance companies/interexchange carriers ("IXCs"),
- paging, cellular and PCS companies,
- cable companies, and
- Internet service providers ("ISPs").
These communications carrier customers typically lease our fiber optic
capacity with which they develop their own communications networks as a low cost
alternative to building their own infrastructure or purchasing metered services
from ILECs or CLECs. Our corporate and government customers typically lease our
fiber optic infrastructure and other broadband services on a point-to-point
basis for high-bandwidth, secure voice and data networks. We believe that we are
well-positioned to penetrate the corporate and government markets since we plan
to continue to install most of our fiber in Tier I markets where these customers
are concentrated. Please refer to the section in this Prospectus entitled
"Business--Customers."
We have designed our networks to provide high levels of reliability,
security and flexibility. Our domestic intracity networks support a self-healing
SONET architecture that prevents interruption in service to our clients by
instantaneously rerouting traffic in the event of a fiber cut. Our advanced
network architecture is also capable of supporting state-of-the-art
technologies, including DWDM (dense wave division multiplexing) which
significantly increases the transmission capacity of a strand of fiber optic
cable. Because DWDM can boost transmission capacity significantly, it has
greater relevance on our intercity routes where we have, on average, fewer
strands of fiber installed than in our intracity markets. We install most of our
fiber inside high density polyethylene conduit to protect the cable and, where
practicable, we install additional unused conduits to cost effectively
accommodate future network expansion and eliminate the need for future
construction. We expect that once our network is completed as currently planned,
we will have approximately 2,800 duct miles of unused conduits throughout our
network and we will have the ability to lease more conduits along many of our
rights-of-way. In addition, we have the ability to pull additional fiber optic
strands through certain of our existing conduits that have not been completely
filled.
We intend to capitalize on the increasing demand for high-bandwidth
dedicated communications services and the limited supply of such transmission
capacity. Based on management experience and
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industry reports, we believe that demand for the broadband communications
infrastructure afforded by our network will continue to increase as a result of
the following factors:
- the rapid growth of communications traffic, such as data traffic, which
industry research indicates is growing by 35% annually,
- the large number of new carriers which will require significant
transmission capabilities in all sectors of the communications industry, due in
large part to industry deregulation facilitated by the Telecommunications Act of
1996 (the "1996 Telecom Act"),
- the fact that the Regional Bell Operating Companies (the "RBOCs") and
other major ILECs will likely need to upgrade to fiber optic networks with
infrastructure similar to ours, and
- the advent of new communications services requiring large amounts of
transmission capacity, such as Internet, intranet and video services.
According to an industry report, the total 1995 market for communications
services in the United States was approximately $183 billion and is expected to
grow to approximately $291 billion by the year 2001. In addition, we believe
that there will be increased demand for our infrastructure due to our ability to
offer fixed-cost pricing which is generally more economical for high volume
users than traditional usage-based pricing.
BUSINESS STRATEGY
Our objective is to become the preferred facilities-based provider of
broadband communications infrastructure to communications carriers, corporations
and government agencies, in our target markets. The following are the key
elements of our strategy to achieve this objective:
ESTABLISH THE COMPANY AS THE PREFERRED CARRIERS' CARRIER OF BROADBAND
COMMUNICATIONS INFRASTRUCTURE.
We lease broadband communications infrastructure on a fixed-cost basis to
various communications carriers, enabling them to compete in markets which were
previously difficult to penetrate due to limited and/or costly access to
high-bandwidth communications infrastructure. Specifically, we plan to lease
fiber infrastructure capacity within our target markets thereby enabling our
carrier customers to bypass the ILECs and facilities-based CLECs. We believe
that we are currently the only company whose principal business is providing
dark fiber on a fixed-cost basis in local Tier I local markets. Additionally, we
plan to lease capacity on our high-bandwidth, long-haul intercity network to
provide seamless connectivity between our various intracity networks. Our
fixed-cost, long-term contracts allow our carrier customers to access our Tier I
markets without incurring the high capital expenditures, many of the franchise
and licensing fees and long lead times usually associated with building their
own networks. We also believe that communications carriers may be more likely to
lease capacity from us rather than from a competitor since we currently have no
plans to offer communications infrastructure services on a metered basis,
choosing instead to position ourselves as a noncompeting provider of
infrastructure alternatives for IXCs, ILECs, CLECs, etc. Please refer to the
section in this Prospectus entitled "Business--Customers."
POSITION THE COMPANY AS THE PREFERRED PROVIDER OF BROADBAND COMMUNICATIONS
INFRASTRUCTURE TO CORPORATE AND GOVERNMENT CUSTOMERS.
Our fiber optic network is expected to serve Tier I markets in which there
are a large number of corporations and government agencies that we believe have
significant unmet demand for communications capacity. These customers typically
lease broadband communications infrastructure from us to connect two or more of
their locations, creating secure networks for voice, video or data
communications. Our primary target customers are those with significant
transmission needs or who require a high degree of security. However, customers
seeking lesser amounts of broadband transmission capacity will have the option
of leasing smaller amounts of capacity from us. By providing
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leased capacity on a fixed-cost rather than a metered basis, we believe our
network will be more economical for our corporate and government customers,
while also providing the ability to expand their usage for low marginal costs
and enhanced reliability and security. Please refer to the section in this
Prospectus entitled "Business--Customers."
REPLICATE SUCCESSFUL BUSINESS MODEL IN NEW MARKETS.
We seek to leverage the success we have begun to demonstrate in our existing
markets by replicating a similar network architecture in a number of additional
markets. Specifically we intend to:
- begin the engineering and construction of five additional intracity
networks bringing the number of our intracity networks to a total of
eleven, and
- replicate our successful domestic strategy in selected European markets.
We expect that our entire network when completed, as currently planned, will
ultimately consist of approximately 1.1 million fiber miles covering
approximately 8,930 route miles. Please refer to the section in this Prospectus
entitled "Risk Factors--Risks Associated with Growth Strategy; Management of
Expansion."
CREATE A LOW COST POSITION.
We believe that we have established a low cost position relative to other
communications carriers primarily for the following reasons:
- we generally install trunks of 432 fibers and may install up to as many as
864 fibers per route mile, which we believe is substantially more fiber
than many other communications carriers install, thereby reducing the per
fiber mile cost to construct and operate our networks,
- we will have a newly-constructed network with advanced fiber optic
technology which we believe offers operating and maintenance cost
advantages,
- we believe that certain of our rights-of-way permits and franchises are
valuable assets that will be costly and difficult for others to procure in
the future, and
- where practicable, we install spare conduit which will allow for expanded
fiber optic capacity at a cost significantly below the cost of new
construction.
Our low cost position should allow us to remain price competitive with other
providers of fiber optic infrastructure and to lease our fiber infrastructure at
a price which customers will find more attractive than the cost of constructing
their own networks.
LEVERAGE NETWORK ASSETS AND STRATEGIC RELATIONSHIPS TO EXPAND THE REACH OF
THE NETWORKS.
We have also obtained long haul fiber capacity between certain of our
intracity networks on a selective basis which we can provide to customers as a
value-added service. As a result, at little incremental cost, we have
successfully been able to expand the reach of our network. In addition, we plan
to continue to enter into strategic partnerships with other communications
providers. For example, we seek to establish additional relationships such as
the one we have established with Racal Telecommunications, Inc. ("Racal"). This
relationship established a 50/50 joint venture linking our U.S. network with
Racal's U.K. network to offer each of our customers seamless broadband
connectivity between New York and London.
INSTALL A TECHNOLOGICALLY ADVANCED NETWORK.
We have installed a technologically advanced network that we believe
provides the high levels of reliability, security and flexibility that our
target customers typically demand. Our domestic intracity
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networks support a self-healing SONET architecture that minimizes interruption
to service in the event of a fiber cut. We also continuously monitor and
maintain high quality control of our network on a 24-hour basis through our
network operations center. Our network is capable of using the highest
commercially available capacity transmission (OC192) and thereby can support
advanced, capacity-intensive data applications such as voice over Internet
Protocol, video teleconferencing, Frame Relay, ATM, multimedia and
Internet-related applications.
BUILD ON MANAGEMENT EXPERIENCE AND METROMEDIA COMPANY RELATIONSHIP.
Our management team and Board of Directors include individuals with
communications industry expertise and extensive experience in network design,
construction, operations and sales. Our Chief Executive Officer and founder,
Stephen A. Garofalo, has approximately 25 years of experience in the cable
installation business. Howard Finkelstein, our President and Chief Operating
Officer, served in various capacities in Metromedia Company over a period of 16
years, including 9 years as President of Metromedia Company's long distance
telephone company, until its merger in 1993 with what is now MCI/WorldCom, Inc..
We also benefit from the communications industry expertise and corporate
governance experience of John W. Kluge, Stuart Subotnick and David Rockefeller.
As the owner of all of the Company's shares of Class B Common Stock, Metromedia
Company and its general partners control the Board of Directors and all
stockholder decisions and, in general, determine the outcome of any corporate
transaction or other matters submitted to the stockholders for approval. Please
refer to the sections in this Prospectus entitled "Risk Factors--Concentration
of Voting Power and Control by Metromedia Company; Anti-takeover Effect of Two
Classes of Stock" and "Certain Relationships and Related Transactions."
The Company was founded in 1993 and is a Delaware corporation. Our principal
executive offices are located at One North Lexington Avenue, White Plains, New
York 10601. Our telephone number is (914) 421-6700.
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SUMMARY OF THE EXCHANGE OFFER
Pursuant to the Registration Rights Agreement, we are offering to exchange
$650,000,000 aggregate principal amount of our Exchange Notes for a like
aggregate principal amount of our Initial Notes. In order to be exchanged, the
Initial Notes must be properly tendered and accepted. All outstanding Initial
Notes that are validly tendered and not validly withdrawn will be exchanged.
RESALE OF EXCHANGE NOTES
Based on certain no-action letters issued by the staff of the Securities and
Exchange Commission, we believe that the Exchange Notes may be offered for
resale, resold or otherwise transferred by you without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that:
- you are acquiring the Exchange Notes in the ordinary course of your
business,
- you are not participating, do not intend to participate, and have no
arrangement or understanding with any person to participate, in the
distribution of the Exchange Notes within the meaning of the Securities
Act, and
- you are not an affiliate of the Company, within the meaning of Rule 405 of
the Securities Act.
If any of the foregoing are not true and you transfer any Exchange Note
without delivering a prospectus meeting the requirements of the Securities Act
or without an exemption from registration of your Exchange Notes under such Act,
you may incur liability under the Securities Act. We do not and will not assume
or indemnify you against such liability.
Each broker-dealer that receives Exchange Notes for its own account may be
deemed to be an "underwriter" within the meaning of the Securities Act and must
acknowledge that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such Exchange Notes. 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. A broker-dealer may use this Prospectus for any
offer to resell, resale or other transfer of the Exchange Notes received in
exchange for Initial Notes which were acquired by such broker-dealer as a result
of market making or other trading activities. We have agreed that, for a period
of 180 days after the consummation of the Exchange Offer, we will make this
Prospectus available to any broker-dealer for use in connection with any such
offer to resell, resale or other transfer. Please refer to the section in this
Prospectus entitled "Plan of Distribution." Subject to certain limitations, we
will take steps to ensure that the issuance of the Exchange Notes will comply
with state securities or "blue sky" laws.
CONSEQUENCES OF FAILURE TO EXCHANGE INITIAL NOTES
If you do not exchange your Initial Notes for Exchange Notes, you will no
longer be able to obligate us to register the Initial Notes under the Securities
Act except in the limited circumstances provided under the Registration Rights
Agreement. In addition, you will not be able to resell, offer to resell or
otherwise transfer the Initial Notes unless they are registered under the
Securities Act, or unless you resell, offer to resell or otherwise transfer them
under an exemption from the registration requirements of, or in a transaction
not subject to, the Securities Act. Please refer to the section in this
Prospectus entitled "Risk Factors--The Failure to Participate in the Exchange
Offer Will Have Adverse Consequences."
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EXPIRATION DATE
The Exchange Offer will expire at 5:00 p.m., New York City time, on,
1999 (the "Expiration Date"), unless we decide to extend the
Expiration Date.
CONDITIONS TO THE EXCHANGE OFFER
The Exchange Offer is not subject to any condition other than certain
customary conditions, including that:
- no change in the laws and regulations impairs our ability to proceed with
the Exchange Offer,
- no change in the current interpretation of the staff of the Securities and
Exchange Commission has occurred and no stop order issued by the staff of
the Securities and Exchange Commission suspends the effectiveness of the
Registration Statement of which this Prospectus is a part,
- no litigation impairs our ability to proceed with the Exchange Offer,
- we obtain all the governmental approvals we deem necessary for the
Exchange Offer, and
- no change or development involving a prospective change in our business or
financial affairs has occurred which might materially impair our ability
to proceed with the Exchange Offer.
Please refer to the section in this Prospectus entitled "The Exchange
Offer--Terms of the Exchange Offer--Conditions."
PROCEDURES FOR TENDERING INITIAL NOTES
If you wish to participate in the Exchange Offer, you must complete, sign
and date the Letter of Transmittal, or a facsimile of the Letter of Transmittal,
and transmit it together with all other documents required by the Letter of
Transmittal (including the Initial Notes to be exchanged) to IBJ Whitehall Bank
& Trust Company, as exchange agent (the "Exchange Agent"), at the address
indicated on the cover page of the Letter of Transmittal. In the alternative,
you can tender your Initial Notes by following the procedures for book-entry
transfer described in this Prospectus. If your Initial Notes are registered in
the name of a broker, dealer, commercial bank, trust company or other nominee,
we urge you to contact such person promptly if you wish to tender your Initial
Notes in the Exchange Offer. For more information on tendering your Initial
Notes, please refer to the sections in this Prospectus entitled "The Exchange
Offer--Terms of the Exchange Offer--Procedures for Tendering" and "--Book Entry
Transfer."
GUARANTEED DELIVERY PROCEDURES
If you wish to tender your Initial Notes and you cannot get your required
documents to the Exchange Agent by the Expiration Date, you may tender your
Initial Notes according to the guaranteed delivery procedures described under
the section of this Prospectus entitled "The Exchange Offer-- Terms of the
Exchange Offer--Guaranteed Delivery Procedure."
WITHDRAWAL RIGHTS
You may withdraw the tender of your Initial Notes at any time prior to 5:00
p.m., New York City time, on the Expiration Date. To withdraw, you must send a
written or facsimile transmission notice of withdrawal to the Exchange Agent at
its address set forth under the "The Exchange Offer--Exchange Agent" prior to
5:00 p.m., New York City time, on the Expiration Date.
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ACCEPTANCE OF INITIAL NOTES AND DELIVERY OF EXCHANGE NOTES
Subject to certain conditions, we will accept any and all Initial Notes that
are properly tendered in the Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. Any Initial Note not accepted for exchange for any
reason will be returned to you without expense as promptly as practicable after
the Expiration Date. We will deliver the Exchange Notes as promptly as
practicable after the Expiration Date and acceptance of the Initial Notes for
exchange. Please refer to the section in this Prospectus entitled "The Exchange
Offer--Terms of the Exchange Offer."
FEDERAL INCOME TAX CONSIDERATIONS RELATING TO THE EXCHANGE OFFER
The exchange of the Initial Notes for Exchange Notes will not be a taxable
event to holders for United States federal income tax purposes. Please refer to
the section of this Prospectus entitled "Certain United States Federal Tax
Considerations."
EXCHANGE AGENT
IBJ Whitehall Bank & Trust Company is serving as exchange agent in the
Exchange Offer (the "Exchange Agent").
FEES AND EXPENSES
We will bear all expenses related to consummating the Exchange Offer and
complying with the Registration Rights Agreement. Please refer to the section in
this Prospectus entitled "The Exchange Offer--Fees and Expenses."
USE OF PROCEEDS
We will not receive any proceeds from the issuance of the Exchange Notes.
The Exchange Offer is intended solely to satisfy certain of our obligations
under the Registration Rights Agreement. Please refer to the sections in this
Prospectus entitled "Use of Proceeds" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources" for a discussion of the use of the proceeds from the issuance of the
Initial Notes.
SUMMARY OF TERMS OF THE EXCHANGE NOTES
ISSUER
Metromedia Fiber Network, Inc.
NOTES OFFERED
$650,000,000 aggregate principal amount of 10% Series B Senior Notes Due
2008. The form and terms of the Exchange Notes are the same as the form and
terms of the Initial Notes except that the Exchange Notes will be registered
under the Securities Act and, therefore, will not bear legends restricting their
transfer and will not be entitled to registration rights under the Registration
Rights Agreement. The Exchange Notes will evidence the same debt as the Initial
Notes and both the Initial Notes and the Exchange Notes will be governed by the
same indenture (the "Indenture"). In this Prospectus, we use the term "Notes"
when describing provisions that govern or otherwise pertain to both the Initial
Notes and the Exchange Notes.
MATURITY DATE
November 15, 2008.
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<PAGE>
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will accrue interest at the rate of 10% per year from
either the most recent date on which interest has been paid on the Initial Notes
you exchanged, or if no interest has been paid on such Initial Notes, from
November 25, 1998. We will pay interest on the Exchange Notes semi-annually in
arrears on May 15 and November 15 of each year, commencing on May 15, 1999.
SINKING FUND
None.
OPTIONAL REDEMPTION
Except as described below and under "--Change of Control", we may not redeem
the Exchange Notes prior to November 15, 2003. After November 15, 2003, we may
redeem the Exchange Notes, in whole or in part, at any time, at the redemption
prices described in the Prospectus under the heading "Description of the
Exchange Notes," together with accrued and unpaid interest, if any, to the date
of redemption. In addition, at any time and from time to time prior to November
15, 2001, we may redeem up to 35% of the aggregate principal amount of the Notes
issued at a redemption price equal to 110% of the principal amount of the Notes
redeemed, plus accrued and unpaid interest, if any, through the date of
redemption, if:
- we use the net cash proceeds of any Public Equity Offerings (as defined)
resulting in gross proceeds of at least $100 million, and
- at least 65% of the aggregate principal amount of the Notes issued remains
outstanding immediately after giving effect to such redemption.
Please refer to the section in this Prospectus entitled "Description of the
Exchange Notes-- Optional Redemption."
CHANGE OF CONTROL
Upon a Change of Control (as defined), you as a holder of Exchange Notes
will have the right to require us to repurchase all of your Exchange Notes at a
repurchase price equal to 101% of the aggregate principal amount of such
Exchange Notes, together with accrued and unpaid interest, if any, to the date
of repurchase. Please refer to the section in this Prospectus entitled
"Description of the Exchange Notes--Change of Control."
RANKING
The Exchange Notes will:
- be general unsecured obligations,
- rank without preference with all our other existing and future unsecured
senior Indebtedness (as defined), and
- be effectively subordinated to all our existing and future secured
Indebtedness to the extent of the assets that secure such Indebtedness and
to all of our subsidiaries' existing or future Indebtedness, whether or
not secured.
RESTRICTIVE COVENANTS
The Indenture under which the Exchange Notes will be issued limits:
- the incurrence of additional indebtedness or preferred stock by us and our
subsidiaries,
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- the payment of dividends on, and repurchase or redemption of, our capital
stock and our subsidiaries' capital stock and the repurchase or redemption
of our subordinated obligations,
- investments, sales of assets and subsidiary stock,
- transactions with affiliates, and
- the incurrence of additional liens.
In addition, the Indenture limits our ability to engage in consolidations,
mergers and transfers of substantially all of our assets and also contains
certain restrictions on distributions from our subsidiaries. All of these
limitations and prohibitions are subject to a number of important qualifications
and exceptions. Please refer to the sections in this Prospectus entitled "Risk
Factors-- Risk Factors Relating to the Notes" and "Description of the Exchange
Notes--Certain Covenants."
ABSENCE OF A PUBLIC MARKET FOR THE NOTES
The Exchange Notes are new securities and there is currently no established
market for them. We cannot assure you as to the development or liquidity of any
market for the Exchange Notes. The Initial Notes are currently eligible for
trading in the Private Offerings, Resales and Trading through Automated Linkages
("PORTAL") market. Following commencement of the Exchange Offer, the Initial
Notes may continue to be traded in the PORTAL market. The Exchange Notes will
not be eligible for trading in the PORTAL market.
FORM OF EXCHANGE NOTES
The Exchange Notes will be represented by one or more permanent global
securities in bearer form deposited on behalf of The Depository Trust Company
("DTC") with IBJ Whitehall Bank & Trust Company, as custodian. You will not
receive Exchange Notes in registered form unless one of the events described in
the section of this Prospectus entitled "Description of the Exchange Notes--Book
Entry; Delivery and Form" occurs. Instead, beneficial interests in the Exchange
Notes will be shown on, and transfers of these will be effected only through,
records maintained in book-entry form by DTC with respect to its participants.
RISK FACTORS
You should consider carefully the information provided in the section in
this Prospectus entitled "Risk Factors" beginning on page 15 and all the other
information provided to you in this Prospectus in deciding whether to tender
your Initial Notes in the Exchange Offer.
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<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data presented below as of and for the
periods ended December 31, 1995, 1996 and 1997 have been derived from our
Consolidated Financial Statements and the related notes included in this
Prospectus beginning on page F-1. Our Consolidated Financial Statements for the
year ended December 31, 1995 have been audited by M. R. Weiser & Co. LLP,
Certified Public Accountants. Our Consolidated Financial Statements as of and
for the years ended December 31, 1996 and 1997 have been audited by Ernst &
Young LLP, independent auditors. The summary consolidated financial data for the
nine months ended September 30, 1997 and the summary consolidated financial data
as of and for the nine months ended September 30, 1998 have been derived from
our unaudited Consolidated Financial Statements and the related notes included
in this Prospectus, which we believe include all adjustments necessary for a
fair presentation of the financial condition and results of operations of the
Company for such periods. The results of operations for interim periods are not
necessarily indicative of the results for a full year's operations. You should
read the following information in conjunction with "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," the Consolidated Financial Statements of the Company
and the related notes and the other financial data appearing in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------ -----------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1997 1998
---------- ----------- ----------- ----------- ----------
STATEMENT OF OPERATIONS DATA:
Revenue............................................. $ 56,000 $ 236,000 $ 2,524,000 $ 1,745,000 $20,840,000
Expenses:
Cost of sales..................................... -- 699,000 3,572,000 2,647,000 9,499,000
Selling, general and administrative............... 3,886,000 2,070,000 6,303,000 3,722,000 9,811,000
Depreciation and amortization..................... 162,000 613,000 757,000 567,000 738,000
Settlement agreement.............................. -- -- -- -- 3,400,000
Consulting and employment incentives.............. -- 3,652,000 19,219,000 19,124,000 248,000
---------- ----------- ----------- ----------- ----------
Loss from operations................................ (3,992,000) (6,798,000) (27,327,000) (24,315,000) (2,856,000)
Interest income (expense), net...................... (327,000) (3,561,000) 1,067,000 (241,000) 5,012,000
(Loss) from joint venture........................... -- -- -- -- (264,000)
Income taxes........................................ -- -- -- -- 825,000
---------- ----------- ----------- ----------- ----------
Net (loss) income................................... $(4,319,000) $(10,359,000) $(26,260,000) $(24,556,000) $1,067,000
---------- ----------- ----------- ----------- ----------
---------- ----------- ----------- ----------- ----------
Net (loss) income applicable to common stockholders
per share......................................... $ (0.17) $ (0.29) $ (0.56) $ (0.64) $ .01
---------- ----------- ----------- ----------- ----------
---------- ----------- ----------- ----------- ----------
Weighted average number of shares outstanding....... 24,829,000 35,858,000 47,447,000 38,652,000 93,196,000
---------- ----------- ----------- ----------- ----------
---------- ----------- ----------- ----------- ----------
EBITDA(1)........................................... $(3,830,000) $(6,185,000) $(26,570,000) $(23,748,000) $(2,382,000)
Adjusted EBITDA(1).................................. $(3,830,000) $(2,533,000) $(7,351,000) $(4,624,000) $1,266,000
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
--------------------------
<S> <C> <C>
AS
ACTUAL ADJUSTED(2)
----------- -------------
BALANCE SHEET DATA:
Cash................................................................................. $76,335,000 $614,835,000
Pledged Securities................................................................... -- 91,500,000
Property and equipment, net.......................................................... 150,311,000 150,311,000
Total assets......................................................................... 255,427,000 905,427,000
Long-term debt....................................................................... 19,687,000 669,687,000
Total liabilities.................................................................... 100,685,000 750,685,000
Stockholders' equity................................................................. $154,742,000 $154,742,000
</TABLE>
- ------------------------------
(1) "EBITDA" consists of earnings (loss) before income taxes plus all net
interest expense and all depreciation and amortization expense. "Adjusted
EBITDA" consists of earnings (loss) before income taxes plus all net
interest expense, depreciation and amortization and noncash employment and
consulting incentives and settlements. You should not think of EBITDA and
Adjusted EBITDA as alternative measures of operating results or cash flows
from operating activities (as determined in accordance with generally
accepted accounting principles). We have included EBITDA and Adjusted EBITDA
because they are widely used financial measures of the potential capacity of
a company to incur and service debt. Our reported EBITDA and Adjusted EBITDA
may not be comparable to similarly titled measures used by other companies.
(2) Adjusted for the issuance of the Initial Notes and the application of the
proceeds thereof.
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<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The following table contains our ratio of earnings to fixed charges for each
of the periods indicated:
<TABLE>
<CAPTION>
PERIOD FROM NINE
APRIL 8, 1993 MONTHS
(DATE OF ENDED
INCEPTION) TO YEAR ENDED SEPTEMBER
DECEMBER 31, DECEMBER 31, 30,
--------------- ------------------------------------------ ---------
1993 1994 1995 1996 1997 1997
--------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to fixed charges (1).................. -- -- -- -- -- --
<CAPTION>
1998
---------
<S> <C>
Ratio of Earnings to fixed charges (1).................. 9.45
</TABLE>
- ------------------------------
(1) Earnings are insufficient to cover fixed charges. The deficiency was
$188,000, $874,000, $4,319,000, $10,359,000, $26,260,000 and $24,556,000,
for the periods ended December 31, 1993, 1994, 1995, 1996, and 1997 and for
the nine months ended September 30, 1997 respectively.
14
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE INFORMATION BELOW, AS WELL AS ALL OTHER
INFORMATION PROVIDED TO YOU IN THIS PROSPECTUS, BEFORE TENDERING THE INITIAL
NOTES IN THE EXCHANGE OFFER, INCLUDING INFORMATION IN THE SECTION OF THIS
PROSPECTUS ENTITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS."
LIMITED HISTORY OF OPERATIONS; NET LOSSES AND NEGATIVE CASH FLOW FROM
OPERATIONS; EXPECTED FUTURE NET LOSSES AND NEGATIVE CASH FLOW FROM OPERATIONS
The Company was formed in April 1993 and has a limited operating history. We
currently have a limited number of customers and are still in the process of
building many of our networks. Accordingly, you will have limited historical
financial information upon which to base your evaluation of our performance and
an investment in the Notes. You must consider our prospects in light of the
risks, expenses and difficulties frequently encountered by companies in their
early stage of development.
In connection with the construction of our networks, we have incurred
substantial net losses and, prior to the nine-month period ended September 30,
1998, we had never generated positive cash flow from operations. We had net
losses of $26.3 million, $10.4 million and $4.3 million for the years ended
December 31, 1997, 1996 and 1995, respectively. We cannot assure you that we
will continue to generate net income or that we will sustain positive cash flow
in the future.
Losses will continue while we concentrate on the development and
construction of additional fiber optic networks and until our networks have
established a sufficient revenue-generating customer base. We will also incur
losses during the initial startup phases of any services that we may provide.
Accordingly, we expect to continue experiencing net operating losses and
negative cash flows for the foreseeable future. We cannot assure you that we
will succeed in establishing an adequate revenue base or that these services
will generate profitability or positive cash flow.
Continued losses and negative cash flow may prevent us from pursuing our
strategies for growth. In addition, if we cannot achieve profitability or
positive cash flows from operating activities, we will not be able to meet our
debt service obligations (including our obligations under the Notes), capital
expenditure requirements or working capital needs.
SUBSTANTIAL DEBT
LARGE AMOUNT OF DEBT
We have substantial debt and debt service requirements since the issuance of
the Initial Notes. As of September 30, 1998, after giving effect to the offering
of the Initial Notes, we would have had total debt of approximately $670
million. As the Indenture allows us to borrow additional amounts in certain
cases to finance the construction and improvement of our networks, we intend to
explore market conditions in order to obtain such additional financing,
including additional long-term fixed-rate financing or senior revolving credit
facilities.
CONSEQUENCES OF DEBT
Our substantial debt has important consequences, including:
- our ability to borrow additional amounts for working capital, capital
expenditures or other purposes is limited,
- a substantial portion of our cash flow from operations is required to make
debt service payments, and
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<PAGE>
- our leverage could limit our ability to capitalize on significant business
opportunities and our flexibility to react to changes in general economic
conditions, competitive pressures and adverse changes in government
regulation.
You should be aware that our ability to repay or refinance our current debt
depends on our successful financial and operating performance and on our ability
to successfully implement our business strategy. Unfortunately, we cannot assure
you that we will be successful in implementing our strategy or in realizing our
anticipated financial results. You should also be aware that our financial and
operational performance depends upon a number of factors, many of which are
beyond our control. These factors include:
- the economic and competitive conditions in the telecommunications network
industry,
- any operating difficulties, increased operating costs or pricing pressures
we may experience,
- the passage of legislation or other regulatory developments that may
adversely affect us,
- any delays in implementing any strategic projects,
- our ability to complete our networks on time and in a cost-effective
manner, and
- our ability to apply our business strategies in foreign cities.
We cannot assure you that our cash flow and capital resources will be
sufficient to repay the Notes and any indebtedness we may incur in the future,
or that we will be successful in obtaining alternative financing. In the event
that we are unable to repay our debts, we may be forced to reduce or delay the
completion or expansion of our networks, sell some of our assets, obtain
additional equity capital or refinance or restructure our debt. If we are unable
to meet our debt service obligations or comply with our covenants, a default
under our existing debt agreements would result. To avoid a default, we may need
waivers from third parties, which might not be granted. You should also read the
information we have included in this Prospectus in the sections entitled
"Description of the Exchange Notes" and "Business--Business Strategy."
RESTRICTIVE DEBT COVENANTS
The Indenture contains a number of significant covenants. These covenants
will limit our ability to, among other things:
- borrow additional money,
- make capital expenditures and other investments,
- pay dividends,
- merge, consolidate, or dispose of our assets, and
- enter into transactions with our affiliates.
Our failure to comply with these covenants would cause a default under the
Indenture. A default, if not waived, could result in acceleration of our
indebtedness, in which case the debt would become immediately due and payable.
If this occurs, we may not be able to repay our debt or borrow sufficient funds
to refinance it. Even if new financing is available, it may not be on terms that
are acceptable to us. Complying with these covenants may cause us to take
actions that we otherwise would not take or not take actions that we otherwise
would take. Please refer to the section in this Prospectus entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
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<PAGE>
RISKS ASSOCIATED WITH GROWTH STRATEGY; MANAGEMENT OF EXPANSION
Our future largely depends on our ability to implement our business strategy
and proposed expansion in order to create the new business and revenue
opportunities described in this Prospectus. In order to implement our proposed
business strategy (including the continued development of our networks within
the United States and in Europe), we must accomplish the following in a timely
manner at a reasonable cost to us and on conditions acceptable to us:
- obtain access to capital markets,
- design fiber network backbone routes,
- install facilities,
- acquire rights-of-way and building access,
- obtain required governmental authorizations and permits, and
- continue to implement and improve our operational, financial, and
accounting systems.
Successful implementation depends on numerous factors beyond our control,
including economic, competitive and other conditions and uncertainties, the
ability to obtain licenses, permits, franchises and rights-of-way on reasonable
terms and conditions and the ability to hire and retain qualified management
personnel. In addition, construction of future networks entails significant
risks, including management's ability to effectively control and manage these
projects, shortages of materials or skilled labor, unforeseen engineering,
environmental or geological problems, work stoppages, weather interference,
floods and unanticipated cost increases. We cannot assure you that the budgeted
costs of our current and future projects will not be exceeded or that these
projects will commence operations within the contemplated schedules, if at all.
The failure to obtain necessary licenses, permits and authorizations could
prevent or delay the completion of construction of all or part of our networks
or increase completion costs. In addition, we cannot assure you that we will be
successful in implementing our business strategy and in managing expansion
effectively, on time or at all.
We will need to strengthen our marketing efforts and increase our staff to
handle future marketing and sales requirements. If we fail to obtain
significant, widespread commercial and public acceptance of our networks and
access to sufficient buildings our visibility in the telecommunications market
could be jeopardized. We cannot assure you that we will be able to secure
customers for the commercial use of our proposed networks or access to such
buildings in each market.
Our ability to implement our business plan, to a significant degree, depends
upon our ability to secure a market for our leased fiber capacity and obtain and
maintain contractual and other relationships with communications carriers and
corporate and government customers. The practice of leasing dark fiber is not
widespread and we cannot assure you that the market will develop or that we will
be able to enter into contracts, comply with the terms of these contracts or
maintain relationships with communications carriers and corporate and government
customers, that these contracts or relationships will be on economically
favorable terms or that communications carriers and corporate and government
customers will not choose to compete against, rather than cooperate with us. If
we are unable to enter into contracts, comply with the terms of the contracts or
maintain relationships with these constituencies our operations would be
materially and adversely affected.
We cannot predict whether providing services to governments will evolve into
a significant market. Existing rights-of-way are typically controlled by
governments and are often used to create leverage in "shared resources projects"
whereby the government obtains communications capacity in exchange for providing
a private communications carrier access to government controlled rights-of-way
for fiber installation. In addition, governments often build their own
communications infrastructure because they
17
<PAGE>
already control the necessary rights-of-way. Accordingly, we cannot assure you
that the market for government customers will significantly develop.
Certain of our current contracts to supply leased fiber capacity allow the
lessee to terminate the contracts and/or provide for liquidated damages if we do
not supply the stated fiber capacity by a specified time. Some of these
contracts can be terminated on this basis. Terminating any of these contracts
could adversely affect our operations.
We may expand the range of services that we offer. These services may
include assisting customers with the integration of their leased dark fiber with
appropriate electronic and optronic equipment by facilitating the involvement of
third party suppliers, vendors and contractors. We cannot assure you that a
market will develop for our new services, that implementing these services will
be technically or economically feasible, that we can successfully develop or
market them or that we can operate and maintain our new services profitably.
NEED FOR ADDITIONAL FINANCING
We may need significant amounts of additional capital to complete the
build-out of our planned fiber optic communications networks and meet our
long-term business strategies, including expanding our networks to additional
cities. Our ability to arrange financing and the cost of financing depend upon
many factors, including:
- general economic and capital markets conditions generally, and in
particular the non-investment grade debt market,
- conditions in the telecommunications market,
- regulatory developments,
- credit availability from banks or other lenders,
- investor confidence in the telecommunications industry and the Company,
- the success of our fiber optic communications networks, and
- provisions of tax and securities laws that are conducive to raising
capital.
If we need additional funds, our inability to raise them will have an adverse
effect on our operations. If we decide to raise additional funds through the
incurrence of debt, we may become subject to additional or more restrictive
financial covenants and ratios.
HIGHLY COMPETITIVE NATURE OF THE TELECOMMUNICATIONS INDUSTRY
The telecommunications industry is extremely competitive, particularly with
respect to price and service. We compete against ILECs, which currently dominate
their local telecommunications markets, and CLECs, many of which have greater
financial, research and development and other resources than we do. In addition
to ILECs and CLECs, several other potential competitors are capable of offering
services similar to those offered by us. These potential competitors include
facilities-based communications service providers, cable television companies,
electric utilities, microwave carriers, satellite carriers, wireless telephone
system operators and large end-users with private networks. A significant
increase in industry capacity or reduction in overall demand would adversely
affect our ability to maintain or increase prices. This would adversely affect
our results of operations.
Some of our principal competitors already own fiber optic cables as part of
their telecommunications networks. Accordingly, any of these carriers, some of
which already have franchise and other agreements with the City of New York and
other local and state governments and substantially greater resources and more
experience than us, could directly compete with us in the
18
<PAGE>
market for leasing fiber capacity, if they are willing to offer this capacity to
their customers. Our franchise and other agreements with the City of New York
and other local and state governments are not exclusive. Potential competitors
with greater resources and more experience than us could enter into franchise
and other agreements with the City of New York and other local and state
governments and compete directly with us.
In addition, some communications carriers and local cable companies have
extensive networks in place that could be upgraded to fiber optic cable, as well
as numerous personnel and substantial resources to begin construction to equip
their networks. If communications carriers and local cable companies decide to
equip their networks with fiber optic cable, they could become significant
competitors of ours.
Other companies may choose to compete with us in our current or planned
markets, including Europe, by leasing fiber capacity (including dark fiber) to
our targeted customers. This additional competition could materially and
adversely affect our operations.
We are also particularly dependent on customers such as NextLink New York,
L.L.C., WinStar Communications, Inc. and certain other customers and are
therefore more susceptible to the impact of poor economic conditions than our
competitors with a more balanced mix of business. Please refer to the section in
this Prospectus entitled "Business--Customers."
EXTENSIVE REGULATION
Existing and future governmental regulations will greatly influence how we
operate our business, our business strategy and ultimately, our viability.
However, we cannot predict the future regulatory framework of our business.
FEDERAL
Federal telecommunications law directly shapes the telecommunications
market. Consequently, regulatory requirements and/or changes could adversely
affect our operations.
Federal telecommunications law imposes special legal requirements on "common
carriers" who engage in "interstate or foreign communication by wire or radio,"
and on "telecommunications carriers." Telecommunications carriers and common
carriers are essentially the same, and are companies that provide communications
services directly to the public, or to all potential users subject to
standardized rates, terms or conditions. We believe that we are not a
"telecommunications carrier" or "common carrier" with respect to our leasing of
dark fiber facilities, and therefore that we are not subject to special legal
requirements applicable to such carriers. However, with respect to offering of
telecommunications services, we will likely operate as a common carrier and
therefore will be subject to the regulatory requirements applicable to common
carriers and to telecommunications carriers. Please refer to the section in this
Prospectus entitled "Business--Regulation." These regulatory requirements may
have a material adverse impact on our business and results of operation.
Our revenues from the provision of telecommunications services to end-users
(but not to other common carriers) are subject to assessment by the FCC for its
Universal Service Fund, as well as other fees and assessments. If providing dark
fiber facilities were deemed to be a "telecommunications" service, then revenues
from facility leases to end-users would be subject to similar assessments. These
assessments could equal approximately 4% of our gross interstate end-user
revenues and 1% of our gross intrastate end-user revenues in 1999, and could
increase in subsequent years. To date, however, we have paid no FCC assessments
because we do not believe that dark fiber leases are a form of
"telecommunications," and because we have not yet provided any transmission
services to end-users.
ILECs, CLECs and IXCs are subject to various federal telecommunications
laws. These laws and FCC regulatory decisions may affect our business by virtue
of the interrelationships that exist among us
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<PAGE>
and many of these regulated telecommunications entities. For example, the FCC
has recently taken steps to reduce the access charges paid by IXCs to ILECs, and
to give the ILECs greater flexibility in setting these charges. While we cannot
predict the precise effect the access charge changes will have on our
operations, reduced access charges will likely make it more attractive for IXCs
to use ILEC facilities, which could have a material adverse effect on IXCs' use
of our fiber optic telecommunications network.
Under the 1996 Telecom Act's interconnection provisions, the FCC is
responsible for determining what elements of an ILEC's network must be provided
to competitors on an unbundled basis. Under these provisions, the FCC has
decided not to declare dark fiber an unbundled network element, but has allowed
state regulators to do so. This decision is currently subject to petitions for
reconsideration before the FCC, and is being challenged in the Supreme Court. A
federal district court in North Carolina has found dark fiber to be a network
element under the 1996 Telecom Act. To date, state commissions in several states
(including New York) have either refused to require the ILECs to offer dark
fiber to competitors or have stated that the issue would be addressed at a later
time. On the other hand, other state commissions have found dark fiber to be a
network element and required the ILECs to offer it on an unbundled basis to
CLECs. Decisions by either the FCC or additional states to require unbundling of
ILEC dark fiber or geographic extension of the ruling of the federal district
court in North Carolina could decrease the demand for our dark fiber, and
thereby have an adverse effect on the results of our operations.
STATE
Each state (and the District of Columbia, which is treated as a state for
the purpose of regulation of telecommunications services) has its own laws for
regulating providers of certain telecommunications-related services as "common
carriers," as "public utilities," or under similar rubrics. We believe that
offering dark fiber facilities is not subject to this type of regulation in most
jurisdictions in which we plan to construct facilities. However, our offering of
transmission services (as distinct from dark fiber capacity) likely will be
subject to regulation in each of these jurisdictions to the extent that these
services are offered for intrastate use, and such regulation may have an adverse
effect on the results of our operations.
Regulation of the telecommunications industry is changing rapidly, and the
regulatory environment varies substantially from state to state. In particular,
state regulators have the authority to determine both the rates we will pay to
ILECs for certain interconnection arrangements such as physical collocation, and
the prices that ILECs will be able to charge our potential customers for
services and facilities that compete with ours. We will also incur certain costs
to comply with regulatory requirements such as the filing of tariffs, submission
of periodic financial and operational reports to regulators, and payment of
regulatory fees and assessments. In some jurisdictions, our pricing flexibility
for intrastate services may be limited because of regulation, although our
direct competitors will be subject to similar restrictions. We cannot assure you
that these, as well as future regulatory, judicial, or legislative action will
not have a material adverse effect on us.
LOCAL
In addition to federal and state laws, local governments exercise legal
authority that may impact our business. For example, local governments, such as
the City of New York, typically retain the ability to license public
rights-of-way, subject to the limitation that local governments may not prohibit
persons from providing telecommunications services. Local authorities affect the
timing and costs associated with our use of public rights-of-way. These
regulations may have an adverse effect on our business.
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<PAGE>
REGULATION OF INTERNATIONAL SERVICE
Various regulatory requirements and limitations also will influence our
business as we attempt to enter international markets.
Although we have not fully determined our international business strategy,
we have entered into a 50/50 joint venture named International Optical Network,
LLC ("ION") with Racal that contemplates jointly acquiring and selling
international, facilities-based telecommunications capacity between the U.S. and
the United Kingdom and possibly between the U.S. and other markets. ION is a
U.S. international common carrier subject to U.S. regulation under Title II of
the Communications Act, and, depending on our specific business plans, it is
possible that we may also become a U.S. international common carrier subject to
such regulation. Under current FCC rules, international carriers that do not
exercise market power and that are not affiliated with dominant foreign carriers
(those exercising market power in their local markets), are subject to
relatively relaxed U.S. regulation as non-dominant international carriers. ION
is and we would also be required, under Sections 214 and 203 of the
Communications Act, respectively, to obtain authorization and file an
international service tariff containing rates, terms and conditions prior to
initiating service. International carriers are also subject to certain annual
fees and filing requirements such as the requirement to file contracts with
other carriers, including foreign carrier agreements, and reports setting forth
international circuit, traffic and revenue data service. A failure to obtain an
appropriate U.S. license for international service, the revocation of a license
or a finding that one of our affiliates or we are a dominant carrier could have
a material adverse effect on our future operations.
To the extent that ION and we operate as international common carriers, ION
and we will also be required to comply with FCC's rules regarding the
International Settlements Policy (the "ISP"), which defines the permissible
boundaries for U.S. carriers and their foreign correspondents to settle the cost
of terminating each other's traffic over their respective networks. The ISP
generally provides that, absent a waiver, U.S. carriers may only enter into
foreign carrier agreements for the exchange of switched traffic that contain the
same accounting rate and settlement rate (typically one-half of the accounting
rate) offered to all other U.S. carriers. The ISP also requires U.S. carriers to
adhere to the principle of proportionate return so that competing U.S. carriers
have comparable opportunities to receive the return traffic that reduces the
marginal cost of providing international service.
The FCC continues to refine its international service rules to promote
competition, reflect and encourage liberalization in foreign countries, and
reduce accounting rates toward cost. Indeed, the FCC has established reduced
"benchmark" rates at which U.S. carriers will be allowed to pay foreign carriers
for terminating U.S.-originated traffic. For example, as of January 1, 1999,
U.S. carriers must ensure that the rate paid to terminate traffic in the U.K.
does not exceed $0.15/minute. Different rates would apply in different countries
by different deadlines depending on the country's income level.
Regulation of the international telecommunications industry is changing
rapidly. We are unable to predict how the FCC will resolve the various pending
international policy issues and the effect of such resolutions on us.
ION's international services are and our future international services may
also be subject to regulation in the United Kingdom and other European
jurisdictions in which we may operate. National regulations of relevant European
countries, as well as policies and regulations on the European Union level,
impose separate licensing, service and other conditions on ION's and our
international service operations, and these requirements may have a material
adverse impact on us.
RISK OF CANCELLATION OR NON-RENEWAL OF FRANCHISES, LICENSES OR PERMITS
We operate our New York network based on a franchise agreement entered into
between us and the City of New York. Both the City of New York and we have the
right, at any time after December 2000, upon six months notice, to renegotiate
in good faith certain terms of this franchise
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agreement, including the annual franchise fee paid by us, based on changes in
technological, regulatory or market conditions which may occur after the
effective date of the agreement. If we cannot reach an agreement after
renegotiation, the franchise agreement will be subject to early termination on a
date which would be one half of the number of days between the date of the
notice to renegotiate and January 1, 2009. Termination of this franchise would
have a material adverse effect on our business, results of operations and
financial condition. Please refer to the section in this Prospectus entitled
"Business--Franchise, License and Related Agreements--New York." We will also
need to obtain additional franchises, licenses and permits for our planned
intracity networks, intercity networks and international networks. We cannot
assure that we will be able to maintain our existing franchises, licenses or
permits or to obtain and maintain the other franchises, licenses or permits
needed to implement our strategy on acceptable terms.
NEED TO OBTAIN AND MAINTAIN RIGHTS-OF-WAY
We must obtain additional rights-of-way and other permits from railroads,
utilities, state highway authorities, local governments and transit authorities
to install underground conduit(s) for the expansion of our intracity networks,
intercity networks and international networks. We cannot assure that we will be
successful in obtaining and maintaining these right-of-way agreements or
obtaining these agreements on acceptable terms. Some of these agreements may be
short-term or revocable at will, and we cannot assure you that we will continue
to have access to existing rights-of-way after they have expired or terminated.
If any of these agreements were terminated or could not be renewed and we were
forced to remove our fiber optic cable from under the streets or abandon our
networks, the termination would have a material adverse effect on our
operations.
More specifically, our New York network relies upon, and our planned
expansions into Long Island and Westchester County will rely upon, right-of-way
agreements with Bell Atlantic Corporation and its subsidiary, Empire City Subway
Company (Ltd.) ("ECS"). The current agreements may be terminated at any time
without cause with three months notice. In case of termination, we may be
required to remove our fiber optic cable from the conduits or poles of Bell
Atlantic Corporation. This termination would have a material adverse effect on
our operations.
RAPID TECHNOLOGICAL CHANGE
The telecommunications industry is subject to rapid and significant changes
in technology that could materially affect the continued use of fiber optic
cable. We cannot predict the effect of technological changes on our business. We
also cannot assure you that technological changes in the communications industry
will not have a material adverse effect on our operations.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
Our strategy includes expanding our services to provide fiber optic cable in
Europe, particularly, Germany and London, England. The following are certain
risks inherent in doing business on an international level:
- regulatory limitations restricting or prohibiting us from providing our
services,
- unexpected changes in regulatory requirements, tariffs, customs, duties
and other trade barriers,
- difficulties in staffing and managing foreign operations,
- longer payment cycles,
- problems in collecting accounts receivable,
- political risks,
- fluctuations in the European currency exchange,
- delays from customs brokers or government agencies, and
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- potentially adverse consequences resulting from operating in multiple
European countries with different laws and regulations, including tax laws
and industry related regulations.
Furthermore, the international rates customers are charged are likely to
decrease in the future for many reasons, including increased competition between
existing carriers, increased competition with new carriers in the European
market and additional strategic alliances or joint ventures among large
international carriers that facilitate targeted pricing and cost reductions. We
cannot assure you that we will be successful in overcoming these risks or any
other problems arising because of expansion into Europe.
RISKS ASSOCIATED WITH ACQUISITIONS, INVESTMENTS AND STRATEGIC ALLIANCES
In the future, we may acquire or try to acquire customer bases and
businesses from, make investments in, or enter into strategic alliances with,
companies which have customer bases, switching capabilities or existing networks
in our current markets or in areas into which we intend to expand our networks.
We are currently evaluating several potential strategic opportunities but,
except as described in this Prospectus, do not have any present definitive
commitment or agreement with respect to any material acquisition, investment,
strategic alliance or related effort. Any future acquisitions, investments,
strategic alliances or related efforts will be accompanied by risks such as:
- the difficulty of identifying appropriate acquisition candidates,
- the difficulty of assimilating the operations of the respective entities,
- the potential disruption of our ongoing business,
- the inability of management to capitalize on the opportunities presented
by acquisitions,
- investments, strategic alliances or related efforts,
- the failure to successfully incorporate licensed or acquired technology
and rights into our services,
- the inability to maintain uniform standards,
- controls, procedures and policies, and
- the impairment of relationships with employees and customers as a result
of changes in management.
We cannot assure you that we would be successful in overcoming these risks
or any other problems encountered with such acquisitions, investments, strategic
alliances or related efforts. Please refer to the sections in this Prospectus
entitled "--Risks Associated with Growth Strategy; Management of Expansion" and
"Business--Business Strategy."
PRICING PRESSURES AND INDUSTRY CAPACITY
We believe that, in the last several years, increasing demand has resulted
in a shortage of capacity and slowed the decline in prices. However, we
anticipate that prices for our services specifically, and transmission services
in general, will continue to decline over the next several years due primarily
to the following:
- price competition as various network providers continue to install
networks that might compete with our networks,
- recent technological advances that permit substantial increases in the
transmission capacity of both new and existing fiber, and
- strategic alliances or similar transactions, such as long distance
capacity purchasing alliances among certain RBOCs, that increase the
parties' purchasing power. Please refer to the section in this Prospectus
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
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RELIANCE ON KEY PERSONNEL
We believe that the success of our business strategy and our ability to
operate profitably depend on the continued employment of our senior management
team led by Stephen A. Garofalo, Chief Executive Officer and Chairman of the
Board of Directors. Our business is managed by a small number of key management
and operating personnel. Our business and financial results could be materially
affected if Mr. Garofalo or other members of our senior management team became
unable or unwilling to continue in their present positions. Certain of our key
executives, Mr. Garofalo, Howard M. Finkelstein, President and Chief Operating
Officer, Vincent A. Galluccio, Senior Vice President, Gerard Benedetto, Vice
President and Chief Financial Officer, and Nicholas M. Tanzi, Vice President--
Sales, are presently party to an employment or non-competition agreement.
CONCENTRATION OF VOTING POWER AND CONTROL BY METROMEDIA COMPANY; ANTI-TAKEOVER
EFFECT OF TWO CLASSES OF STOCK
The holders of Class A Common Stock, par value $.01 per share, of the
Company (the "Class A Common Stock"), are entitled to one vote per share. The
holders of Class B Common Stock, par value $.01 per share of the Company (the
"Class B Common Stock"), are entitled to ten votes per share and vote as a
separate class to elect at least 75% of the members of the Board of Directors.
Each share of Class B Common Stock is convertible at any time into one share of
Class A Common Stock, and with limited exceptions, converts automatically upon
any transfer of the stock. Stephen A. Garofalo currently controls approximately
26% of the outstanding shares of Class A Common Stock. Metromedia Company and
certain of its affiliates currently own 100% of the Class B Common Stock, and
represent approximately 66% of the Company's total voting power. Accordingly,
Metromedia Company is able to control the Board of Directors and all
stockholders' decisions and, in general, to determine (without the consent of
the Company's other stockholders) the outcome of any corporate transaction or
other matter submitted to the stockholders for approval, including mergers,
consolidations and the sale of all or substantially all of the Company's assets.
In addition, Metromedia Company has the power to prevent or cause a change in
control of the Company. Please refer to the sections in this Prospectus entitled
"Security Ownership" and "Certain Relationships and Related Transactions."
LITIGATIONS AGAINST THE COMPANY
On or about October 20, 1997, Vento & Company of New York, LLC ("VCNY")
commenced an action against the Company, Stephen A. Garofalo and several other
defendants in the United States District Court for the Southern District of New
York (No. 97 CIV 7751). In its complaint, as amended, VCNY alleges four causes
of action in connection with its sale of 900,000 shares (not adjusted for
subsequent stock splits) of Class A Common Stock to certain defendants on
January 13, 1997 (the "VCNY Sale"). The four causes of action include: (i)
violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated under such Act; (ii) fraud and fraudulent concealment; (iii) breach
of fiduciary duty; and (iv) negligent misrepresentation and omission. On the
first and second causes of action, VCNY is seeking, among other things, the
rescission of the VCNY Sale, or alternatively, damages in an amount which we
cannot currently ascertain but believe to be in excess of $36.0 million,
together with interest. On the third and fourth causes of action, VCNY is
seeking damages in an amount which we cannot currently ascertain but believe to
be in excess of $36.0 million, together with interest. VCNY is also seeking
punitive damages in the amount of $50.0 million, reasonable legal fees and the
cost of this action. All the defendants, including Mr. Garofalo and the Company,
have moved to dismiss VCNY's complaint.
On or about June 12, 1998, Claudio E. Contardi commenced an action against
Peter Sahagen, Sahagen Consulting Group of Florida and the Company in the United
States District Court for the Southern District of New York (No. 98 CIV 4140).
Mr. Contardi alleges a cause of action for, among other things, breach of a
finder's fee agreement entered into between Mr. Sahagen and Mr. Contardi
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on or about November 14, 1996 and breach of an implied covenant of good faith
and fair dealing contained in the finder's fee agreement. Mr. Contardi is
seeking, among other things, a number of shares of the Company which we cannot
currently ascertain but believe to be approximately 225,000 shares (calculated
as of the date on which the complaint was filed) or damages in an amount which
we cannot currently ascertain but believe to be approximately $4.9 million
(calculated as of the date on which the complaint was filed) and all costs and
expenses incurred by him in this action. We have filed an answer to the
complaint and have raised affirmative defenses.
We intend to vigorously defend both these actions because we believe that we
acted appropriately in connection with the matters at issue in these two cases.
However, we can make no assurances that we will not determine that the
advantages of entering into a settlement outweigh the risk and expense of
protracted litigation or that ultimately we will be successful in defending
against these allegations. If we are unsuccessful in defending against these
allegations, an award of the magnitude being sought in the VCNY litigation would
have a material adverse effect on our financial condition and results of
operations.
LIMITED NATURE OF OUR SERVICES
We provide fiber optic communications infrastructure and are not currently
engaged in the transmission of voice, data or video services. We do not provide
switched voice and data services unlike other telecommunications companies.
Accordingly, we receive no revenues from providing such services. Instead, we
derive substantially all of our revenue from the leasing of fiber optic capacity
to our customers, many of whom transmit voice, data and/or video information or
provide switched voice and data services. While we may later decide to provide
those services, the limited nature of our current services could limit potential
revenues and result in our having lower revenues than competitors which provide
a wider array of services. Please refer to the sections in this Prospectus
entitled "Business--Customers" and "Business--Competition."
INVESTMENT COMPANY ACT REGULATION
Following the offering of the Initial Notes, we have substantial cash, cash
equivalents and short-term investments. We invested approximately $91.5 million
of the net proceeds of the offering of Initial Notes in a portfolio of U.S.
government securities that were pledged to secure the payment in full of the
interest on the Notes through May 15, 2000. We have invested the balance of such
proceeds in short-term instruments with prudent cash management and not
primarily for the purpose of achieving investment returns. Investment in
securities primarily for the purpose of achieving investment returns could
result in the Company being treated as an "investment company" under the
Investment Company Act of 1940. A company is considered an "investment company"
under the Investment Company Act if it holds itself out as primarily in the
business of investing, reinvesting or trading in securities. A company can also
be considered an "investment company" if it fails certain numerical tests as to
the composition of its assets and the sources of its income, even if it is
primarily engaged in a business other than investing, reinvesting, owning,
holding or trading in securities. The Investment Company Act of 1940 requires
investment companies to register with the Securities and Exchange Commission and
imposes various substantive restrictions on investment companies with respect to
matters such as their capital structure, management, operations and transactions
with affiliated persons.
We believe that we will not be considered to be engaged in investing,
reinvesting, owning, holding or trading securities, and therefore, will not be
regarded as an investment company within the meaning of the Investment Company
Act. However, application of such Act to us would materially adversely affect
our business, financial condition and results of operations.
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<PAGE>
RISK FACTORS ASSOCIATED WITH THE "YEAR 2000 PROBLEM"
Many computer systems and software products will not function properly in
the year 2000 and beyond due to a once-common programming standard that
represents years using two digits. This problem is often referred to as the
"Year 2000" problem. We are currently working to evaluate and resolve the
potential impact of the Year 2000 on our processing of date-sensitive
information and network systems. We plan to contact all our significant
suppliers, contractors and major systems developers to determine our
vulnerability to their Year 2000 situations. We presently believe that the Year
2000 problem will only have a minimal cost impact. However, we cannot assure you
that other companies will convert their systems on a timely basis and that their
failure will not have an adverse effect on our systems. If our customers,
suppliers, contractors, and major systems developers are unable to address their
Year 2000 issues in a timely manner, a material adverse effect on our results of
operations and financial condition could result. Please refer to the section in
this Prospectus entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 System Modifications."
RISK FACTORS RELATING TO THE NOTES
COMPANY STRUCTURE
We are a holding company with few direct operations and few assets of
significance other than the stock of our subsidiaries. As such, we will be
dependent on the cash flows of our subsidiaries to meet our obligations,
including the payment of principal and interest on the Notes. Our subsidiaries
are separate legal entities that will have no obligation to pay any amounts due
under the Notes or to make any funds available therefor, whether by dividends,
loans or other payments. Our subsidiaries will not guarantee the payment of the
Notes. The Notes will therefore be effectively subordinated to the claims of the
creditors of our subsidiaries (including trade creditors and holders of
indebtedness of such subsidiaries). We expect that our current and future
subsidiaries will incur significant amounts of equipment financing and other
indebtedness in connection with the development of our networks. Please refer to
the sections in this Prospectus entitled "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources," "Business" and "Description of the Exchange Notes."
PRIORITY OF SECURED AND SUBSIDIARIES' DEBT OVER THE NOTES
The Notes are unsecured and therefore will be effectively subordinated to
all our existing and future secured indebtedness to the extent of the value of
the assets securing such indebtedness and to all of our subsidiaries' existing
or future Indebtedness, whether or not secured. The Indenture permits us and our
subsidiaries to incur an unlimited amount of secured indebtedness to finance the
acquisition of equipment, inventory, construction, installation, lease,
development or improvement of network assets. Please refer to the section of
this Prospectus entitled "Description of the Exchange Notes." Consequently, in
the event of a bankruptcy, liquidation, dissolution, reorganization or similar
proceeding of the Company, the assets of the Company will be available to
satisfy obligations of such secured debt before any payment may be made on the
Notes. In addition, to the extent such assets cannot satisfy in full the secured
indebtedness, the holders of such indebtedness would have a claim for any
shortfall that would rank equally in right of payment (or effectively senior if
the indebtedness were issued by a subsidiary) with the Notes. Accordingly, there
might only be a limited amount of assets available to satisfy your claims as a
holder of the Notes upon an acceleration of the maturity of the Notes.
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FRAUDULENT CONVEYANCE STATUTES
An unpaid creditor or representative of creditors, such as a trustee in
bankruptcy or the Company as a debtor-in-possession in a bankruptcy proceeding,
could file a lawsuit claiming that the issuance of the Notes constituted a
"fraudulent conveyance." To make such a determination, a court would have to
find that:
- we did not receive fair consideration or reasonably equivalent value for
the Notes, and that,
- at the time the Notes were issued, we were insolvent or rendered insolvent
by the issuance of the Notes; were engaged in a business or transaction
for which our remaining assets constituted unreasonably small capital; or
intended to incur, or believed that we would incur, debts beyond our
ability to pay such debts as they matured.
If the court were to make such a finding, it could:
- void our obligations under the Notes,
- subordinate the Notes to other indebtedness, or
- take other actions detrimental to you as a holder of the Notes.
The measure of insolvency for these purposes will vary depending upon the
law of the jurisdiction being applied. Generally, however, a company will be
considered insolvent for these purposes if the sum of that company's debts is
greater than the fair value of all of that company's property, or if the present
fair saleable value of that company's assets is less than the amount that will
be required to pay its probable liability on its existing debts as they mature.
Moreover, regardless of solvency, a court could void an incurrence of
indebtedness, including the Notes, if it determined that the transaction was
made with intent to hinder, delay or defraud creditors, or a court could
subordinate the indebtedness, including the Notes, to the claims of all existing
and future creditors on similar grounds. We cannot determine in advance what
standard a court would apply to determine whether we were "insolvent" in
connection with the issuance of the Notes. The measure of insolvency for
purposes of determining whether a fraudulent conveyance has occurred will vary
depending upon the laws of the relevant jurisdiction and upon the valuation
assumptions and methodology applied by the court.
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The Initial Notes were not registered under the Securities Act or under the
securities laws of any state and may not be resold unless they are subsequently
registered or resold pursuant to an exemption from the registration requirements
of the Securities Act and applicable state securities laws. The Exchange Notes
will be registered under the Securities Act but will constitute a new issue of
securities with no established trading market, and there can be no assurance as
to:
- the development of any market for the Exchange Notes,
- the liquidity of any such market that may develop,
- the ability of holders of Exchange Notes to sell their Exchange Notes, or
- the price at which the holders of the Exchange Notes would be able to sell
their Exchange Notes.
The Initial Notes are designated for trading among qualified institutional
investors in the PORTAL market. The Company has been advised by the Initial
Purchasers that they presently intend to make a market in the Exchange Notes.
However, they are not obligated to do so and may discontinue any such
market-making activity with respect to the Exchange Notes at any time without
notice. Following commencement of the Exchange Offer, the Initial Notes may
continue to be traded in the PORTAL market. The Exchange Notes will not be
eligible for trading in the PORTAL market. Accordingly, we
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cannot assure you that an active trading market will exist for the Exchange
Notes or that such trading market will be liquid. If such a market were to
exist, the Exchange Notes could trade at prices that may be higher or lower than
their principal amount or purchase price, depending on many factors, including
prevailing interest rates, the market for similar debentures and the financial
performance of the Company. Historically, the market for non-investment grade
debt has been subject to disruptions that have caused substantial volatility in
the prices of securities similar to the Exchange Notes. We cannot assure you
that the market for the Exchange Notes, if any, will not be subject to similar
disruptions. Any such disruptions may adversely affect you as a holder of the
Exchange Notes.
THE ISSUANCE OF THE EXCHANGE NOTES MAY ADVERSELY AFFECT THE MARKET FOR THE
INITIAL NOTES
To the extent that Initial Notes are tendered for exchange and accepted in
the Exchange Offer, the trading market for the untendered and tendered but
unaccepted Initial Notes could be adversely affected. Please refer to the
section in this Prospectus entitled "--The Failure to Participate in the
Exchange Offer Will Have Adverse Consequences."
THE FAILURE TO PARTICIPATE IN THE EXCHANGE OFFER WILL HAVE ADVERSE CONSEQUENCES
The Initial Notes were not registered under the Securities Act or under the
securities laws of any state and may not be resold, offered for resale or
otherwise transferred unless they are subsequently registered or resold pursuant
to an exemption from the registration requirements of the Securities Act and
applicable state securities laws. If you do not exchange your Initial Notes for
Exchange Notes pursuant to the Exchange Offer, you will not be able to resell,
offer to resell or otherwise transfer the Initial Notes unless they are
registered under the Securities Act or unless you resell them, offer to resell
or otherwise transfer them under an exemption from the registration requirements
of, or in a transaction not subject to, the Securities Act. In addition, you
will no longer be able to obligate us to register the Initial Notes under the
Securities Act except in the limited circumstances provided under the
Registration Rights Agreement. In addition, if you want to exchange your Initial
Notes in the Exchange Offer for the purpose of participating in a distribution
of the Exchange Notes, you may be deemed to have received restricted securities,
and, if so, will be required to comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
AFFILIATES AND BROKER-DEALERS WHO PARTICIPATE IN THE EXCHANGE OFFER MUST DELIVER
A PROSPECTUS IN CONNECTION WITH RESALES OF THE EXCHANGE NOTES
Based on certain no-action letters issued by the staff of the Securities and
Exchange Commission, we believe that the Exchange Notes may be offered for
resale, resold or otherwise transferred by you without compliance with the
registration and prospectus delivery requirements of the Securities Act provided
that:
- you are acquiring the Exchange Notes in the ordinary course of your
business,
- you are not participating, do not intend to participate, and have no
arrangement or understanding with any person to participate, in the
distribution of the Exchange Notes within the meaning of the Securities
Act, and
- you are not an affiliate of the Company within the meaning of Rule 405 of
the Securities Act.
If any of the foregoing are not true and you transfer any Exchange Note
without delivering a prospectus meeting the requirements of the Securities Act
or without an exemption from registration of your Exchange Notes under such Act,
you may incur liability under the Securities Act. We do not and will not assume
or indemnify you against such liability.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Initial Notes which were acquired by such broker-dealer as a result
of market making or other trading activities may
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be deemed to be an "underwriter" within the meaning of the Securities Act and
must acknowledge that it will deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of such Exchange Notes. 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. A broker-dealer may use
this Prospectus for any offer to resell, resale or other transfer of the
Exchange Notes. We have agreed that, for a period of 180 days after the
consummation of the Exchange Offer, we will make this Prospectus available to
any broker-dealer for use in connection with any such offer to resell, resale or
other transfer. Please refer to the section of this Prospectus entitled "Plan of
Distribution." Subject to certain limitations, we will take steps to ensure that
the issuance of the Exchange Notes will comply with state securities or "blue
sky" laws.
THE FAILURE TO ADHERE TO EXCHANGE OFFER PROCEDURES WILL HAVE ADVERSE
CONSEQUENCES
We will issue you the Exchange Notes pursuant to the Exchange Offer only
after the timely receipt of your Initial Notes, a properly completed and duly
executed Letter of Transmittal and all other required documents. Therefore, if
you want to tender your Initial Notes, please allow sufficient time to ensure
timely delivery. We are under no duty to give notification of defects or
irregularities with respect to the tenders of Initial Notes for exchange.
Initial Notes that are not tendered or are tendered but not accepted will,
following the consummation of the Exchange Offer, continue to be subject to the
existing restrictions upon transfer thereof, and, upon consummation of the
Exchange Offer, certain registration rights with respect to the Initial Notes
under the Registration Rights Agreement will terminate. Please refer to the
section in this Prospectus entitled "--The Failure to Participate in the
Exchange Offer Will Have Adverse Consequences."
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the Exchange
Notes in exchange for the outstanding Initial Notes. The Exchange Offer is
intended solely to satisfy certain of our obligations under the Registration
Rights Agreement. In consideration for issuing the Exchange Notes, we will
receive Initial Notes in like aggregate principal amount.
The net proceeds to the Company from the original issuance of the Initial
Notes, after deducting discounts, commissions and expenses were approximately
$630 million. We invested approximately $91.5 million of the net proceeds in a
portfolio of U.S. government securities, which were then pledged as security for
the payment in full of interest on the Notes through May 15, 2000. We intend to
use the balance of such net proceeds for the build-out of our intra-city and
inter-city networks in the United States and Europe and for other capital
expenditures, working capital and general corporate purposes, including possible
acquisitions of other companies or assets. We currently intend to allocate
substantial proceeds to each of these uses. However, the precise allocation of
funds among these uses will depend on future technological, regulatory and other
developments in or affecting our business, the competitive climate in which we
operate and the emergence of future opportunities.
We have invested such proceeds in U.S. government securities or other
short-term, interest bearing, investment grade securities. We are not currently
and do not expect as a result to become subject to the registration requirements
of the Investment Company Act of 1940, as amended. Please refer to the section
in this Prospectus entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
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CAPITALIZATION
The following table shows our capitalization as of September 30, 1998 and as
adjusted to reflect the issuance of the Initial Notes and the application of the
net proceeds therefrom. You should read this table together with the
Consolidated Financial Statements and related notes included in this Prospectus
beginning on page F-1 and the information in the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1998
----------------------------------
ACTUAL AS ADJUSTED
------------- -------------------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents........................................... $ 76,335 $ 614,835
------------- --------
------------- --------
Pledged Securities: (1)............................................. $ -- $ 91,500
------------- --------
------------- --------
Debt:
Capital lease obligations less current portion.................... $ 19,687 $ 19,687
10% Series A Senior Notes due 2008................................ -- 650,000
------------- --------
Total debt........................................................ 19,687 669,687
------------- --------
Stockholders' equity
Class A Common Stock, $.01 par value, 180,000,000 shares
authorized; 77,460,452 shares issued and outstanding............ 774 774
Class B Common Stock, $.01 par value; 20,000,000 shares
authorized; 16,884,636 shares issued and outstanding............ 169 169
Additional paid-in capital.......................................... 195,955 195,955
Accumulated deficit................................................. (42,156) (42,156)
------------- --------
Total stockholders' equity........................................ 154,742 154,742
------------- --------
Total capitalization................................................ $ 174,429 $ 824,429
------------- --------
------------- --------
</TABLE>
- ------------------------
(1) Represents amounts deposited with the Security Agent pursuant to the
Security Agreement (as defined) to make payments of interest on the Notes
through May 15, 2000.
30
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below as of and for the
years ended December 31, 1995, 1996 and 1997 have been derived from our
Consolidated Financial Statements and the related notes included in this
Prospectus beginning on page F-1. Our Consolidated Financial Statements for the
year ended December 31, 1995 have been audited by M. R. Weiser & Co. LLP,
Certified Public Accountants. Our Consolidated Financial Statements as of and
for the years ended December 31, 1996 and 1997 have been audited by Ernst &
Young LLP, independent auditors. The selected financial data presented below for
the period ended December 31, 1993 have been derived from our unaudited
financial statements which we believe include all adjustments necessary for a
fair presentation of the financial condition and results of operations of the
Company for such period. The selected consolidated financial data and balance
sheet data as of and for the nine months ended September 30, 1998 and the
selected consolidated financial data for the nine months ended September 30,
1997 have been derived from our unaudited Consolidated Financial Statements and
the related notes included in this Prospectus, which we believe include all
adjustments necessary for a fair presentation of the financial condition and
results of operations of the Company for such periods. The results of operations
for interim periods are not necessarily indicative of the results for a full
year's operations. You should read the following information in conjunction with
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business," the Consolidated Financial Statements of
the Company and the related notes and the other financial data appearing in this
Prospectus.
31
<PAGE>
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 8,
1993
(DATE OF NINE MONTHS
INCEPTION) YEAR ENDED ENDED
TO DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, -------------------------------------------------------- -------------
1993 1994 1995 1996 1997 1997
------------ ------------ ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.......................... $ -- $ -- $ 56,000 $ 236,000 $ 2,524,000 $ 1,745,000
Expenses:
Cost of sales.................. -- -- -- 699,000 3,572,000 2,647,000
Selling, general and
administrative................. 188,000 874,000 3,886,000 2,070,000 6,303,000 3,722,000
Depreciation and
amortization................. -- -- 162,000 613,000 757,000 567,000
Settlement agreement........... -- -- -- -- -- --
Consulting and employment
incentives..................... -- -- -- 3,652,000 19,219,000 19,124,000
------------ ------------ ------------ ------------- ------------- -------------
Loss from operations............. (188,000) (874,000) (3,992,000) (6,798,000) (27,327,000) (24,315,000)
Interest income (expense), net... -- -- (327,000) (3,561,000) 1,067,000 (241,000)
(Loss) from joint venture........ -- -- -- -- --
Income taxes..................... -- -- -- -- -- --
------------ ------------ ------------ ------------- ------------- -------------
Net (loss) income................ (188,000) 874,000 (4,319,000) (10,359,000) (26,260,000) (24,556,000)
------------ ------------ ------------ ------------- ------------- -------------
------------ ------------ ------------ ------------- ------------- -------------
Net (loss) income applicable to
common stockholders per
share.......................... $ (0.03) $ (0.04) $ (0.17) $ (0.29) $ (0.56) $ (0.64)
------------ ------------ ------------ ------------- ------------- -------------
------------ ------------ ------------ ------------- ------------- -------------
Weighted average number of shares
outstanding.................... 6,084,000 23,336,000 24,829,000 35,858,000 47,447,000 38,652,000
------------ ------------ ------------ ------------- ------------- -------------
------------ ------------ ------------ ------------- ------------- -------------
Ratio of Earnings to fixed
charges(1)..................... -- -- -- -- -- --
EBITDA(2)........................ $ (188,000) $ (874,000) $ (3,830,000) $ 6,185,000 $ (26,570,000) $ (23,748,000)
Adjusted EBITDA (2).............. $ (188,000) $ (874,000) $ (3,830,000) $ (2,533,000) $ (7,351,000) $ (4,624,000)
<CAPTION>
1998
------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.......................... $ 20,840,000
Expenses:
Cost of sales.................. 9,499,000
Selling, general and
administrative................. 9,811,000
Depreciation and
amortization................. 738,000
Settlement agreement........... 3,400,000
Consulting and employment
incentives..................... 248,000
------------
Loss from operations............. (2,856,000)
Interest income (expense), net... 5,012,000
(Loss) from joint venture........ (264,000)
Income taxes..................... 825,000
------------
Net (loss) income................ 1,067,000
------------
------------
Net (loss) income applicable to
common stockholders per
share.......................... $ 0.01
------------
------------
Weighted average number of shares
outstanding.................... 93,196,000
------------
------------
Ratio of Earnings to fixed
charges(1)..................... 9.45
EBITDA(2)........................ $ (2,382,000)
Adjusted EBITDA (2).............. $ 1,266,000
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
----------------------------
<S> <C> <C>
AS
ACTUAL ADJUSTED(3)
------------- -------------
BALANCE SHEET DATA
Cash............................................................................................. $ 76,335,000 $ 614,835,000
Pledged Securities............................................................................... -- $ 91,500,000
Property and equipment, net...................................................................... 150,311,000 150,311,000
Total assets..................................................................................... 255,427,000 905,427,000
Long-term debt................................................................................... 19,687,000 669,687,000
Total liabilities................................................................................ 100,685,000 750,685,000
Stockholders' equity............................................................................. $ 154,742,000 $ 154,742,000
</TABLE>
- ------------------------
(1) Earnings are insufficient to cover fixed charges. The deficiency was
$188,000, $874,000, $4,319,000, $10,359,000, $26,260,000 and $24,556,000,
for the periods ended December 31, 1993, 1994, 1995, 1996, and 1997 and for
the nine months ended September 30, 1997 respectively.
(2) "EBITDA" consists of earnings (loss) before income taxes plus all net
interest expense and all depreciation and amortization expense. "Adjusted
EBITDA" consists of earnings (loss) before income taxes plus all net
interest expense, depreciation and amortization and non cash employment and
consulting incentives and settlements. You should not think of EBITDA and
Adjusted EBITDA as alternative measures of operating results or cash flows
from operating activities (as determined in accordance with generally
accepted accounting principles). We have included EBITDA and Adjusted EBITDA
because they are widely used financial measures of the potential capacity of
a company to incur and service debt. Our reported EBITDA and Adjusted EBITDA
may not be comparable to similarly titled measures used by other companies.
(3) Adjusted to reflect the issuance of the Initial Notes and the use of the
proceeds therefrom.
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING INFORMATION TOGETHER WITH OUR CONSOLIDATED
FINANCIAL STATEMENTS AND THE RELATED NOTES INCLUDED IN THIS PROSPECTUS BEGINNING
ON PAGE F-1. CERTAIN STATEMENTS IN THIS SECTION ARE "FORWARD-LOOKING
STATEMENTS." YOU SHOULD READ THE INFORMATION UNDER "SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS" LATER IN THIS SECTION FOR SPECIAL INFORMATION ABOUT
OUR PRESENTATION OF FORWARD-LOOKING INFORMATION.
GENERAL
We are a facilities-based provider of technologically advanced,
high-bandwidth, fiber optic communications infrastructure to communications
carriers and corporate/government customers in the United States. We focus our
operations on domestic intracity fiber optic networks in clusters of Tier I
cities throughout the United States. We currently operate high-bandwidth fiber
optic communications networks in New York and within the next two quarters
expect to be operating similar networks in Philadelphia and Washington, D.C. We
have also begun engineering and constructing networks in Chicago, San Francisco
and Boston and within the next two years, we plan to complete an expansion into
five additional markets including Los Angeles, Seattle, Dallas, Houston and
Atlanta. We expect that our domestic intracity networks will ultimately
encompass approximately 810,000 fiber miles covering approximately 1,896 route
miles.
We have also obtained intercity fiber optic capacity that links certain of
our intracity networks. We expect to complete a 180,000 fiber mile or 241 route
mile network from New York to Washington, D.C. during the first quarter of 1999.
We have also obtained rights for fiber optic capacity with other
facilities-providers and obtained fiber optic capacity linking certain of the
metropolitan areas (New York--Chicago, New York--Boston,
Chicago--Seattle--Portland) in which we plan to construct intracity networks,
except in Portland.
In addition, we have entered into a joint venture with a U.K.
telecommunications company to connect our New York network to London and we have
announced that we intend to form a joint venture to construct a high-bandwidth
fiber optic network connecting 13 major cities in Germany and obtain certain
additional fiber optic capacity in Western Europe. Please refer to the sections
in this Prospectus entitled "Business" and "Risk Factors--Risks Associated with
Growth Strategy; Management of Expansion."
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997:
REVENUES for the nine months ending September 30, 1998 were $20.8 million or
1,124% greater than revenues of $1.7 million for the nine months of 1997. The
increase in revenue for the nine months ended September 30, 1998 versus the nine
months ended September 30, 1997 reflected higher revenues associated with
commencement of service to an increased total number of customers, as well as
revenue recognized related to grants of indefeasible rights of use to portions
of our network.
COST OF SALES were $9.5 million in the nine months ending September 30,
1998, a 265% increase over cost of sales of $2.6 million for the first nine
months of 1997. Cost of sales increased for the nine months ended September 30,
1998 as compared to the same period in 1997 due to costs associated with the
commencement of service to customers, higher fixed costs associated with the
operation of our network in service and the allocated costs of the network
related to revenue recognized for grants of indefeasible rights of use to
portions of our network. Costs of sales as percentages of revenue for the first
nine months of 1998 and 1997 were 46% and 153%, respectively, declining as a
result of the significant increase in the number of customers and revenues.
33
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES increased to $9.8 million
during the first nine months of 1998, from $3.7 million during the first nine
months of 1997, an increase of $6.1 million, or 165%. The increase in selling,
general and administrative expenses for the nine-month period ended September
30, 1998 as compared to the nine-month period ended September 30, 1997 resulted
primarily from increased overhead to accommodate our network expansion.
CONSULTING AND EMPLOYMENT INCENTIVES EXPENSE for the nine months ended
September 30, 1998 were $0.2 million compared with $19.1 million for the nine
months ended September 30, 1997. Consulting and employment incentives expense
incurred in 1997 reflects the value of stock options issued to key employees,
officers and directors in order to attract or retain their services. For the
nine months ended September 30, 1998, the amount recorded reflects amortization
for the unvested component of options issued in 1997 to key employees.
SETTLEMENT AGREEMENT. We recorded $3.4 million for a settlement agreement
in the nine months ended September 30, 1998. The amount was recorded in the
first quarter of 1998 for the expense associated with the issuance of stock
options and payment of cash related to the settlement agreement.
DEPRECIATION AND AMORTIZATION EXPENSE was $0.7 million during the nine
months ended September 30, 1998, as compared to $0.6 million during the nine
months ended September 30, 1997, an increase of $0.1 million, or 17%. The
increases in depreciation and amortization expense resulted from increased
investment in our completed fiber optic network and property and equipment.
INTEREST INCOME was $5.0 million during the nine months ended September 30,
1998 as compared to $0.5 million during the comparable 1997 period, an increase
of $4.5 million, or 900%. Interest income during 1998 was derived from
investment of our excess cash received as proceeds from the Initial Public
Offering (as defined) in October 1997.
INTEREST EXPENSE decreased in the nine months ended September 30, 1998 to
$16,000 as compared to $732,000 for the nine months ended September 30, 1997.
The decrease in interest expense reflects the repayment of all of our debt in
1997 with the proceeds from the Metromedia Investment (as defined) in the second
quarter.
INCOME (LOSS) FROM JOINT VENTURE. We recorded a $264,000 loss from our 50%
share of the ION joint venture's loss for the nine-month period, ending
September 30, 1998. The loss primarily represents startup costs and operating
activities for the joint venture.
INCOME TAXES. We recorded a provision for income taxes for the nine-month
periods ended September 30, 1998 in the amount of $825,000. This represents an
estimated effective tax rate, for federal and state taxes, of 43.6%.
NET INCOME was $1.1 million for the nine months ended September 30, 1998, as
compared to a net loss of $24.6 million for the comparable period of 1997. For
the nine months ended September 30, 1998, basic net income per share was $0.01
as compared to a basic net loss per share of $.64 for the nine months ended
September 30, 1997. On a diluted basis, net income per share for the nine months
ended September 30, 1998 was $0.01.
The improvements in results for the nine-month period were primarily
attributable to the growth of revenues and the improvements in gross margins, as
noted above, as well as the increase in net interest income as compared to net
interest expense related to the Metromedia Investment and the funds raised
through the Initial Public Offering.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996:
REVENUES for 1997 were $2,524,311, a 969% increase as compared to 1996
revenues of $236,082. The revenue increase was generated by one time revenues
associated with commencement of services
34
<PAGE>
to customers as well as increased recurring lease revenues which reflects the
growth in the number of our customers.
COST OF SALES for 1997 were $3,572,005, an increase of 411% as compared to
the $698,793 which was recorded as cost of sales in 1996. The increase in cost
of sales was associated with the increased revenues. Cost of sales as a
percentage of revenues improved to 142% in 1997 from 296% in 1996. The
improvement in cost of sales as a percentage of revenues reflects the increases
in revenue outdistancing the increases in cost, as the components of cost were
mostly of a fixed nature.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES increased to $6,303,041 in 1997
from $2,070,345 in 1996, a 204% increase. This increase resulted primarily from
increased legal expenses as a result of our increased business activities and
the increased staffing to accommodate our anticipated growth.
CONSULTING AND EMPLOYMENT INCENTIVES EXPENSE of $19,218,591 was recorded in
1997 as compared to $3,652,101 in 1996. The 1997 expense represents the value of
stock options issued to key employees, officers, directors and consultants in
order to attract or retain their services. The amount recorded in 1996 reflects
the expense associated with issuance of stock and warrants to consultants in
consideration for services rendered.
DEPRECIATION AND AMORTIZATION EXPENSE was $757,133 in 1997 as compared to
$612,530 in 1996. The increase in depreciation and amortization expense resulted
from increased investment in our fiber optic network.
INTEREST INCOME of $1,808,007 was recorded in 1997 as compared to no
interest income during 1996. The interest income in 1997 arose from the
investment of our excess cash during the year. In 1996, we had no excess cash to
invest and, accordingly, earned no interest income.
INTEREST EXPENSE (INCLUDING FINANCING COSTS) decreased in 1997 to $740,786
from $3,561,010 in 1996. The decrease in interest expense reflects the repayment
of all of our debt during the year with the proceeds of the Metromedia
Investment, as well as lower financing costs. Please refer to the section in
this Prospectus entitled "Certain Relationships and Related Transactions."
NET LOSS. We recorded a net loss of $26,259,238 in 1997 as compared to a
net loss of $10,358,697 in 1996. The increase in the net loss was primarily
attributable to costs associated with organizing to meet our growth objectives.
In particular, such costs include the consulting and employment incentive,
described above, to attract and retain key employees, officers and directors, as
well as increased overhead to meet our growth objectives.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995:
During the year ended December 31, 1995, we were in our early development
stage and did not generate our first revenues until the last three months of
1995 when customers began using our facilities.
TOTAL REVENUES increased to $236,082 for the year ended December 31, 1996
from $56,149 for the year ended December 31, 1995, representing an increase of
$179,933. The increase in revenue was due primarily to an increase in the number
of our customers.
COST OF SALES was $698,793 for the year ended December 31, 1996. We did not
record any cost of sales for the year ended December 31, 1995. The increase was
primarily attributable to the inclusion of franchise fees and easement costs in
cost of sales for 1996. In prior years such fees were classified as selling,
general and administrative expense.
35
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES decreased to $2,070,345 for the
year ended December 31, 1996 from $3,886,568 for the year ended December 31,
1995, representing a decrease of $1,816,223.
CONSULTING AND EMPLOYMENT INCENTIVES were $3,652,101 for the year ended
December 31, 1996 as compared to none in 1995, reflecting our issuance of equity
instruments for consulting services.
DEPRECIATION AND AMORTIZATION increased to $612,530 for the year ended
December 31, 1996 from $161,576 for the year ended December 31, 1995,
representing an increase of $450,954. We recognize certain components of
depreciation and amortization upon commencement of service to customers, which
did not occur until late 1995. As a result, depreciation and amortization in
1996 was larger than it was in 1995 due to the inclusion of a full year of
depreciation and amortization for such customers.
INTEREST EXPENSE (INCLUDING FINANCING COSTS) increased to $3,561,010 for the
year ended December 31, 1996 from $327,106 for the year ended December 31, 1995,
representing an increase of $3,233,904. This increase was a result of additional
debt incurred in 1996 to finance construction of our New York network and to
fund our operations.
NET LOSS increased to $10,358,697 for the year ended December 31, 1996 from
$4,319,101 for the year ended December 31, 1995, representing an increase of
$6,039,596. The increase in net loss is attributable to the factors discussed
above.
LIQUIDITY AND CAPITAL RESOURCES
On November 3, 1997, our initial public offering of 36,432,000 shares of
Class A Common Stock (the "Initial Public Offering") generated net proceeds of
$133.9 million, after deducting the underwriters' commission and expenses
relating to the Initial Public Offering.
During 1997, we utilized $2.2 million for operating activities primarily to
prepay a long term, nonexclusive right-of-way in order to build-out a portion of
our network and also to meet our growth objectives. A portion of the operating
activities was funded by advance payments received from customers. In addition,
we utilized $19.7 million in 1997 for investing activities, primarily to
build-out our network. In 1997, $155.9 million of cash flows were provided by
financing activities reflecting the net proceeds of the Initial Public Offering,
as discussed above, and by the equity investment in the Company of $32.5 million
made by Metromedia Company and certain of its affiliates on April 30, 1997, a
portion of which was utilized to repay all our outstanding debt and purchase all
of the Company's Series A preferred stock outstanding at April 30, 1997.
Cash used in operating activities during 1996 was $2.8 million as compared
to $1.3 million in 1995. Cash was utilized in both years to support the
operations through our startup phase. Cash flows used in investing activities
were $1.1 million in 1996 and $4.2 million in 1995. The investing activities
cash outflows in both years were primarily used for the building of our New York
network. Financing activities provided cash flows of $4.3 million in 1996 and
$5.2 million in 1995 with the issuance of equity in 1996 and the issuance of
debt in both 1996 and 1995. The cash flows from financing activities in both
1996 and 1995 were utilized to fund our operating and investing activities.
For the nine months ended September 30, 1998, our operating activities
generated $16.9 million of cash, compared with a use of $3.9 million during the
comparable nine-month period of 1997. The increase in cash provided by
operations was primarily due to the increase in advance payments received from
customers as well as the improvement in net income as a result of increases in
revenues and interest income in the nine months ended September 30, 1998 as
compared to the nine months ended September 30, 1997. For the nine months ended
September 30, 1998, we used $80.3 million of cash for investing activities as
compared to $1.7 million for the comparable period in 1997. This increase was
due primarily to investments in the expansion of our networks and related
construction in progress as
36
<PAGE>
well as capital contributions to our ION joint venture and a deposit on the
German Network build. For the nine months ended September 30, 1998, we received
$0.9 million of net cash from financing activities, compared to $21.9 million
for the same period in 1997. The cash from financing activities in 1998 came
from the issuance of common stock from exercises of warrants and options, while
the 1997 amount related to the sale of securities of the Company net of the
repayment of certain of our indebtedness.
We anticipate that we will continue to incur net operating losses as we
expand and complete our existing networks, construct additional networks and
market our services to an expanding customer base. We anticipate spending
approximately $300 million for the year ending December 31, 1999 and
approximately $200 million for the year ending December 31, 2000 on the
build-out of our fiber optic networks in 10 Tier I cities and our planned
international networks. We believe that the net proceeds of the offering of the
Initial Notes, certain vendor financing, cash on hand as of September 30, 1998
and cash generated in 1999 and 2000 (including advance customer payments), will
be sufficient to fund the planned build-out of our fiber optic networks and our
other working capital needs through the year ended December 31, 2000. The
Indenture permits us to incur additional indebtedness to finance the
construction of our networks. As a result, we may also consider from time to
time private or public sales of additional equity or debt securities, entering
into senior credit facilities and other financings, depending upon market
conditions, in order to finance the continued build-out of our network. We
cannot assure you that we will be able to successfully consummate any such
financing at all, or on acceptable terms. Accordingly, we expect to continue
experiencing net operating losses and negative cash flows for the foreseeable
future.
YEAR 2000 SYSTEM MODIFICATIONS
We are currently working to evaluate and resolve the potential impact of the
Year 2000 on our processing of date-sensitive information and network systems.
The Year 2000 problem is the result of computer programs being written using two
digits (rather than four) to define the Year 2000, which could result in
miscalculations or system failures resulting from recognition of a date using
"00" as the year 1900 rather than the year 2000.
We have delegated responsibility to a group of executives, to coordinate the
identification, evaluation and implementation of changes to computer systems and
applications necessary to achieve our goal of a Year 2000 date conversion which
would minimize the effect on our customers and avoid disruption to business
operations. We are also focusing on hardware and software tools, programming and
outside forces that may affect our operations, including our vendors, banks and
utility companies. Our analysis of the Year 2000 threat is ongoing and will be
continuously updated throughout 1998 and 1999 as necessary.
We have completed a questionnaire and project plan to our systems and
operating personnel to identify all business and computer applications so that
we can identify potential compliance problems. We plan to initiate
communications with all of our significant customers, suppliers, contractors and
major systems developers to determine their plans to remedy any Year 2000 issues
that arise in their business with us. We plan to compile a database of
information based upon these responses, which is expected to be completed during
the first quarter of 1999. To the extent problems are identified, we will
implement corrective procedures where necessary, then test the applications for
Year 2000 compliance. We expect to complete this project prior to January 1,
2000.
Based on preliminary data, our estimate is that the Year 2000 effort will
have a nominal cost impact, although we can make no assurances as to the
ultimate cost of the Year 2000 effort or the total cost of information systems.
Such costs will be expensed as incurred, except to the extent such costs are
incurred for the purchase or lease of capital equipment. We expect to make some
of the necessary modifications through our ongoing investment in system
upgrades. We believe that our exposure to this
37
<PAGE>
issue, based on our internal systems, is somewhat limited by the fact that
substantially all of our existing systems have been purchased or replaced since
1996.
As of January 1, 1999, we had incurred nominal consulting costs in respect
of our Year 2000 conversion effort. We have not deferred any other information
systems projects due to the Year 2000 efforts. We expect that the source of
funds for Year 2000 costs will be cash on hand. Accordingly, we plan to devote
the necessary resources to resolve all significant Year 2000 issues.
If our customers, suppliers, contractors or major systems developers are
unable to resolve Year 2000 processing issues in a timely manner, a material
adverse effect on our results of operations and financial condition could
result.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Any statements in this Prospectus about our expectations, beliefs, plans,
objectives, assumptions or future events or performance are not historical facts
and are forward-looking statements. These statements are often, but not always,
made through the use of words or phrases such as "will likely result," "expect,"
"will continue," "anticipate," "estimate," "intend," "plan," "projection,"
"would" and "outlook." Accordingly, these statements involve estimates,
assumptions and uncertainties which could cause actual results to differ
materially from those expressed in them. Any forward-looking statements are
qualified in their entirety by reference to the factors discussed throughout
this Prospectus. The following cautionary statements identify important factors
that could cause our actual results to differ materially from those projected in
the forward-looking statements made in this Prospectus. Among the key factors
that have a direct bearing on our results of operation are:
- general economic and business conditions; the existence or absence of
adverse publicity; changes in, or failure to comply with, government
regulations; changes in marketing and technology; changes in political,
social and economic conditions;
- competition in the telecommunications industry; industry capacity; general
risks of the telecommunications industries;
- success of acquisitions and operating initiatives; changes in business
strategy or development plans; management of growth;
- availability, terms and deployment of capital;
- construction schedules; costs and other effects of legal and
administrative proceedings;
- dependence on senior management; business abilities and judgment of
personnel; availability of qualified personnel; labor and employee benefit
costs,
- development risks; risks relating to the availability of financing; and
- other factors referenced in this Prospectus.
These and other factors are discussed in "Risk Factors" and elsewhere in this
Prospectus.
Because the risk factors referred to above could cause actual results or
outcomes to differ materially from those expressed in any forward-looking
statements made by us, you should not place undue reliance on any such
forward-looking statements. Further, any forward-looking statement speaks only
as of the date on which it is made and we undertake no obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time, and it is not
possible for us to predict which will arise. In addition, we cannot assess the
impact of each factor on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
38
<PAGE>
BUSINESS
THE COMPANY
We are a facilities-based provider of technologically advanced,
high-bandwidth, fiber optic communications infrastructure to carrier and
corporate/government customers in the United States and Europe.
THE INTRACITY NETWORKS. We have installed local intracity networks that as
of January 1, 1999, consisted of approximately 160,000 fiber miles covering
approximately 400 route miles in four major metropolitan areas (New York,
Philadelphia, Washington, D.C. and Chicago) that constitute key Tier I
telecommunications markets. We currently operate a high bandwidth fiber optic
communications network in the New York metropolitan area and within the next two
quarters will be operating such networks in the Philadelphia and Washington,
D.C. metropolitan areas.
We are currently planning to expand our existing local intracity networks in
these metropolitan areas, which will bring our total infrastructure in these
markets to approximately 357,000 fiber miles covering approximately 846 route
miles. We have also begun engineering and constructing networks in the San
Francisco and Boston metropolitan areas.
Within the next two years, we plan to complete an expansion into five
additional markets: Los Angeles, Seattle, Dallas, Houston and Atlanta. We
anticipate that our total intracity network infrastructure will encompass
ultimately approximately 810,000 fiber miles covering approximately 1,896 route
miles in the aggregate. We are currently in the planning process for
construction of these networks.
THE INTERCITY NETWORKS. In addition to intracity networks in these 11 major
metropolitan areas, we are expanding the capacity of our intercity network
between the New York and Washington, D.C. metropolitan areas to a total of
approximately 180,000 fiber miles covering approximately 241 route miles. We
have also obtained, through exchanges of fiber capacity or "fiber swaps" with
other carriers and in certain instances, the payment of certain additional
consideration, the right to use fiber optic strands linking New York--Chicago,
Chicago--Seattle--Portland and New York--Boston. These intercity networks give
us the ability to offer our customers not only capacity within the 11 major
metropolitan areas where we will operate networks within the United States but
also between many of these same markets.
TRANSATLANTIC CONNECTIVITY. We have entered into a 50/50 joint venture,
called ION, with Racal, a United Kingdom manufacturer of electronics and other
equipment and a provider of telecommunications services. Through this joint
venture, we are able to offer our customers seamless broadband connectivity
between our New York and other U.S. networks and London.
THE EUROPEAN NETWORKS. We also plan to offer our customers an expanded
presence in Europe through:
- a proposed joint venture with Carrier 1 Holdings, Ltd. ("Carrier 1") and
Viatel, Inc. ("Viatel") that will develop a 1,350 route miles fiber optic
telecommunications network in Germany connecting to 13 of its largest
cities, including Hamburg, Berlin, Munich, Frankfurt and Dusseldorf (the
"German Network"), and
- a proposed fiber swap with Viatel under which we would receive the right
to use approximately 3,880 fiber miles covering approximately 970 route
miles of a broadband fiber optic network that will travel between Germany,
France, The Netherlands and the United Kingdom (the "European Network").
We cannot assure you that we will be able to build or use these networks
because we have not entered into final agreements with Carrier 1 and Viatel.
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GENERAL. We focus on leasing or otherwise making available for use our
broadband communications infrastructure to two main customer groups:
communications carriers and corporate/ government customers located in selected
Tier I markets. Our target carrier customers include a broad range of
communications companies such as:
- ILECs,
- CLECs,
- long distance companies/IXCs,
- paging, cellular and PCS companies,
- cable companies, and
- ISPs.
These carrier customers typically lease fiber optic capacity with which they
develop their own communications networks as a lowcost alternative to building
their own infrastructure or purchasing metered services from ILECs or
facilities-based CLECs. Our corporate and government customers typically lease
fiber optic infrastructure and other broadband services on a point-to-point
basis for high-bandwidth, secure voice and data networks. We believe that we are
well-positioned to penetrate the corporate and government markets since we plan
to continue to install most of our fiber in Tier I markets. Please refer to the
section in this Prospectus entitled "--Customers."
The fiber communications infrastructure leased to our customers provides
high-bandwidth capacity for customers that seek to establish secure
communications networks for the transmission of large amounts of voice, data and
video. For example, a pair of our fiber optic strands can transmit up to 8.6
gigabits of data per second or the equivalent of approximately 129,000
simultaneous voice conversations.
We tailor the amounts of capacity leased to the needs of our customers.
Certain customers that lease fiber optic capacity from us connect their own
transmission equipment to the leased fiber, and therefore obtain a fixed-cost,
secure telecommunications alternative to the metered communications services
offered by traditional providers. Other customers that require lesser amounts of
transmission capacity will have the option to lease a much smaller broadband
capacity on our network, as we are able to divide a single strand of fiber into
multiple smaller communications channels. We believe that we have installation,
operating, and maintenance cost advantages per fiber mile relative to our
competitors because we generally install our networks with 432 fibers and may
install as many as 864 fibers per route mile as compared to a generally lower
number of fibers in existing competitive networks.
Our intracity networks support a self-healing SONET architecture that
minimizes the risk of downtime in the event of a fiber cut and provides our
customers with high security and reliability. We install most of our fiber
inside high density polyethylene conduit to protect the cable and, where
practicable, we install additional unused conduits to accommodate future network
expansion.
We benefit from the support of our controlling stockholder Metromedia
Company. On April 30, 1997, Metromedia Company and certain of its affiliates
made a substantial equity investment in the Company (the "Metromedia
Investment"). Metromedia Company and its partners own all of the outstanding
shares of Class B Common Stock. The Class B Common Stock is entitled to 10 votes
per share and to vote separately to elect at least 75% of the members of the
Board of Directors. As a result, Metromedia Company and its partners own and
control approximately 64% of the outstanding voting power (on a fully diluted
basis) of the Company. On October 28, 1997, we successfully completed the
Initial Public Offering generating proceeds to the Company of $135.5 million
(after deducting underwriting discounts but not deducting offering expenses).
The Company was founded in 1993 and is a Delaware corporation.
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BUSINESS STRATEGY
Our objective is to become the preferred facilities-based provider of
broadband communications infrastructure to communications carriers, corporations
and government agencies, in our target markets. The following are the key
elements of our strategy to achieve this objective:
ESTABLISH THE COMPANY AS THE PREFERRED CARRIERS' CARRIER OF BROADBAND
COMMUNICATIONS INFRASTRUCTURE.
We lease broadband communications infrastructure on a fixed-cost basis to
various communications carriers, enabling them to compete in markets which were
previously difficult to penetrate due to limited and/or costly access to
high-bandwidth communications infrastructure. Specifically, we plan to lease
fiber infrastructure capacity within our target markets thereby enabling our
carrier customers to bypass the ILECs and facilities-based CLECs. We believe
that we are currently the only company whose principal business is providing
dark fiber on a fixed-cost basis in local Tier I markets. Additionally, we plan
to lease capacity on our high-bandwidth, long-haul intercity network to provide
seamless connectivity between our various intracity networks. Our fixed-cost,
long-term contracts allow our carrier customers to access our Tier I markets
without incurring the high capital expenditures, many of the franchise and
licensing fees and long lead times usually associated with building their own
networks. We also believe that communications carriers may be more likely to
lease capacity from us rather than from a competitor since we currently have no
plans to offer communications infrastructure services on a metered basis,
choosing instead to position ourselves as a noncompeting provider of
infrastructure alternatives for IXCs, ILECs, CLECs, etc. Please refer to the
section in this Prospectus entitled "--Customers."
POSITION THE COMPANY AS THE PREFERRED PROVIDER OF BROADBAND COMMUNICATIONS
INFRASTRUCTURE TO CORPORATE AND GOVERNMENT CUSTOMERS.
Our fiber optic network is expected to serve Tier I markets in which there
are a large number of corporations and government agencies that we believe have
significant unmet demand for communications capacity. These customers typically
lease broadband communications infrastructure from us connecting two or more of
their locations, creating secure networks for voice, video or data
communications. Our primary target customers are those with significant
transmission needs or who require a high degree of security. However, customers
seeking lesser amounts of broadband transmission capacity will have the option
of leasing smaller amounts of capacity from us. By providing leased capacity on
a fixed-cost rather than a metered basis, we believe our network will be more
economical for our corporate and government customers, while also providing the
ability to expand their usage for low marginal costs and enhanced reliability
and security. Please refer to the section in this Prospectus entitled
"--Customers."
REPLICATE SUCCESSFUL BUSINESS MODEL IN NEW MARKETS.
We seek to leverage the success we have begun to demonstrate in our existing
markets by replicating a similar network architecture in a number of additional
markets. Specifically we intend to:
- begin the engineering and construction of five additional intracity
networks bringing the number of our intracity networks to a total of
eleven, and
- replicate our successful domestic strategy in selected European markets.
We expect that our entire network when completed, as currently planned, will
ultimately consist of approximately 1.1 million fiber miles covering
approximately 8,930 route miles. Please refer to the section in this Prospectus
entitled "Risk Factors--Risks Associated with Growth Strategy; Management of
Expansion."
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CREATE A LOW COST POSITION.
We believe that we have established a low cost position relative to other
communications carriers primarily for the following reasons:
- we generally install trunks of 432 fibers and may install up to as many as
864 fibers per route mile, which we believe is substantially more fiber
than many other communications carriers install, thereby reducing the per
fiber mile cost to construct and operate our networks,
- we will have a newly-constructed network with advanced fiber optic
technology which we believe offers operating and maintenance cost
advantages,
- we believe that certain of our rights-of-way and franchises are valuable
assets that will be costly and difficult for others to procure in the
future, and
- where practicable, we install spare conduit which will allow for expanded
fiber optic capacity at a cost significantly below the cost of new
construction.
Our low cost position should allow us to remain price competitive with other
providers of fiber optic infrastructure and to lease our fiber infrastructure at
a price which customers will find more attractive than the cost of constructing
their own networks.
LEVERAGE NETWORK ASSETS AND STRATEGIC RELATIONSHIPS TO EXPAND THE REACH OF
THE NETWORKS.
We have also obtained long haul fiber capacity between certain of our
intracity networks on a selective basis which we can provide to customers as a
value-added service. As a result, at little incremental cost, we have
successfully been able to expand the reach of our network. In addition, we plan
to continue to enter into strategic partnerships with other communications
providers. For example, we seek to establish additional relationships such as
the one we have established with Racal. This relationship established a 50/50
joint venture to link our U.S. network to Racal's U.K. network to offer each of
our customers seamless broadband connectivity between New York and London.
INSTALL A TECHNOLOGICALLY ADVANCED NETWORK.
We have installed a technologically advanced network that we believe
provides the high levels of reliability, security and flexibility that our
target customers typically demand. Our domestic intracity networks support a
self-healing SONET architecture that minimizes interruption to service in the
event of a fiber cut. We also continuously monitor and maintain high quality
control of our network on a 24-hour basis through our network operations center.
Our network is capable of using the highest commercially available capacity
transmission (OC192) and thereby can support advanced, capacity-intensive data
applications such as Frame Relay, ATM, multimedia and Internet-related
applications.
BUILD ON MANAGEMENT EXPERIENCE AND METROMEDIA COMPANY RELATIONSHIP.
Our management team and Board of Directors include individuals with
communications industry expertise and extensive experience in network design,
construction, operations and sales. Our Chief Executive Officer and founder,
Stephen A. Garofalo, has approximately 25 years of experience in the cable
installation business. Howard Finkelstein, our President and Chief Operating
Officer, served in various capacities in Metromedia Company over a period of 16
years, including 9 years as President of Metromedia Company's long distance
telephone company, until its merger in 1993 with what is now MCI/WorldCom, Inc..
We also benefit from the communications industry expertise and corporate
governance experience of John W. Kluge, Stuart Subotnick and David Rockefeller.
As the owner of all of the Company's shares of Class B Common Stock, Metromedia
Company and its general partners control the Board of Directors and all
stockholder decisions and, in general, determine the outcome of any corporate
transaction or other matters submitted to the stockholders for approval. Please
refer to the sections in this Prospectus entitled "Risk Factors--Concentration
of Voting Power and Control by
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Metromedia Company; Anti-takeover Effect of Two Classes of Stock" and "Certain
Relationships and Related Transactions."
BUILD-OUT OF NETWORKS
We have concentrated on developing and constructing our networks. As we
discuss in more detail below we have either obtained or are currently pursuing
the acquisition of necessary licenses, franchises and rights-of-way to construct
these networks. In constructing our fiber optic networks, we seek to create
strategic alliances with the engineering and construction management firms that
have been engaged to develop routes and easements and manage deployment plans.
Firms with whom we are allied in this regard have deployed local loop network
infrastructure for RBOCs as well as for CLECs. Though we anticipate outsourcing
much of the actual construction to various construction firms, we maintain
strict oversight of the design and implementation of our fiber optic
communications networks. We utilize only advanced commercially available fiber.
We have ordered a substantial portion of our fiber optic cable from Lucent
Technologies, Inc. However, we believe that we could obtain advanced fiber from
other suppliers on acceptable terms.
We intend to finance the build-out of our networks with the net proceeds we
received from the issuance of the Initial Notes, cash on hand, and revenues
generated from the sale of capacity on our networks, including substantial up
front payments for certain long term leases and rights to use agreements.
THE NEW YORK NETWORK. When complete, our intracity network in the New
York/New Jersey metropolitan area (the "NY Network") as currently planned will
be approximately 169,400 fiber miles covering approximately 440 route miles. As
expanded, the entire NY Network will create a SONET capable fiber ring focused
in Manhattan and extending into each of the other four boroughs, as well as east
to Brookhaven, Long Island, north to Stamford, Connecticut, and west to Northern
and Central New Jersey.
THE PHILADELPHIA NETWORK. When complete, our network in the Philadelphia
metropolitan area (the "Philadelphia Network") as currently planned will be
approximately 29,000 fiber miles covering approximately 67 route miles. As
completed, the entire Philadelphia Network will create a SONET capable fiber
ring throughout downtown Philadelphia as well as the surrounding areas of
Bala-Cynwyd, Bryn Mawr, Radnor, Berwyn, Paoli, Malvern and King of Prussia.
THE WASHINGTON, D.C. NETWORK. When complete, our network in the Washington,
D.C. metropolitan area (the "Washington Network") as currently planned will be
approximately 55,000 fiber miles covering approximately 127 route miles. As
completed, the entire Washington Network will create a SONET capable fiber ring
throughout Washington, D.C. and will extend to vital government and business
centers in Arlington, Fairfax, the Dulles airport area, Bethesda, Rockville,
Silver Spring and other locations in northern Virginia and suburban Maryland.
THE CHICAGO NETWORK. When complete, our network in the Chicago metropolitan
area (the "Chicago Network") as currently planned will be approximately 104,000
fiber miles covering approximately 212 route miles. As completed, the entire
Chicago Network will create a SONET capable fiber ring throughout Chicago and
will extend to Oak Brook, Downers Grove, Franklin Park, Arlington Heights, Des
Plaines, Rosemont, Schaumburg and O'Hare Airport.
THE OTHER INTRACITY NETWORKS. Subject to the receipt of the necessary
franchises, licenses and rights-of-way, we plan to construct additional fiber
optic communications networks in San Francisco, Boston, Los Angeles, Seattle,
Dallas, Houston and Atlanta. Although we cannot assure you that we will obtain
the necessary franchises, licenses and rights-of-way in these cities or that
these franchises, licenses and rights-of-way will provide all of the rights
needed to implement our strategy on acceptable terms, we plan to construct our
networks in these cities in a manner similar to our existing networks.
Construction is under way in the San Francisco and the Boston metropolitan
areas. When complete,
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our network in the San Francisco metropolitan area (the "San Francisco Network")
as currently planned will be approximately 65,000 fiber miles covering
approximately 150 route miles. As completed, the San Francisco Network will
create a SONET capable fiber ring through San Francisco, San Mateo and San Jose.
When complete, our network in the Boston metropolitan area (the "Boston
Network") as currently planned will be approximately 32,000 fiber miles covering
approximately 75 route miles. As completed, the Boston Network will create a
SONET capable fiber ring through Cambridge, Newton, Wellesley, Bedford and
Redford. We are currently in the planning process for the construction of the
other intracity networks. In January 1999, we entered into an agreement to
acquire a provider of dark fiber that is constructing an intracity network in
Dallas. Consummation of this transaction is pending and subject to customary
conditions.
THE INTERCITY NETWORKS. We are in the process of completing the
construction of our intercity network between New York City and Washington, D.C.
When we complete its construction, this intercity network will cover
approximately 180,000 fiber miles over approximately 241 route miles. When
completed, this network will extend from New York to Washington, D.C. and will
pass through Philadelphia, Pennsylvania, Wilmington, Delaware, and Baltimore,
Maryland. We have obtained all of the necessary rights-of-way for this network.
We have also obtained, through exchanges of fiber capacity or "fiber swaps"
with other carriers and the payment of certain other consideration, the right to
use fiber optic strands linking New York and Chicago, Chicago and Seattle,
Seattle and Portland and New York and Boston. As a result of these transactions,
we have obtained approximately 33,000 fiber miles covering approximately 4,474
route miles of broadband fiber optic capacity. We believe we have the ability to
lease broadband capacity between our intracity networks that will enhance our
ability to market our intracity networks to both our carrier and corporate
customers. These intercity network agreements will give us the ability to offer
our customers not only capacity within 11 major metropolitan areas within the
United States but also seamless connectivity from coast to coast.
THE INTERNATIONAL NETWORKS. We have entered into a forty year agreement
with a subsidiary of Racal, a United Kingdom manufacturer of electronics and
other equipment and a provider of telecommunications services, to create ION, a
joint venture in which we hold a 50% equity interest. ION has obtained
transatlantic fiber optic cable rights on Gemini and AC-1 which link our New
York network to London, England. Through ION, we are able to offer our customers
seamless broadband transatlantic communications services between New York and
London. Under the ION joint venture agreement, each party may contribute
additional capital as agreed by the parties. As of September 30, 1998, we had
made capital contributions of approximately $2.8 million to ION. In May 1998,
ION was awarded a 25 year term contract in excess of $25 million from a leading
provider of undersea cable capacity to provide inland capacity services from
such provider's undersea cable landing stations in the U.K. and the U.S.
We have entered into a letter of intent with Carrier 1 and Viatel to develop
jointly the German Network of approximately 64,800 fiber miles covering
approximately 1,350 route miles. The German Network will include 13 of Germany's
largest cities such as Hamburg, Berlin, Munich, Frankfurt and Dusseldorf. We
have also entered into a letter of intent for an exchange of fiber optic
capacity with Viatel. Under this second letter of intent, we would receive the
right to use approximately 3,880 fiber miles covering approximately 970 route
miles on the European Network that will travel between France, Germany, The
Netherlands and the United Kingdom. We anticipate that both the German Network
and the European Network will be high-capacity broadband networks capable of
supporting high-quality voice, video, internet protocol and data traffic and
built using a self-healing SONET architecture. Initially, we would develop the
German Network jointly with Viatel and Carrier 1. Viatel would own just over
half of the development entity. Following completion of the German Network, our
joint venture with Carrier 1 and Viatel would dissolve and we would end up
owning our own conduit of fiber infrastructure in Germany. We cannot assure you
that we will be able to obtain either or both of
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these networks because we have not entered into final agreements with Carrier 1
and Viatel. Assuming we are able to finalize and execute binding agreements with
Carrier 1 and Viatel, we believe that the German Network will be completed in
stages with the first segment available by the second or third quarter of 1999.
TECHNOLOGY
Our networks consist of fiber optic communications networks which allow for
high speed, high quality transmission of voice, data and video. Fiber optic
systems use laser-generated light to transmit voice, data and video in digital
formats through ultrathin strands of glass. Fiber optic systems are generally
characterized by large circuit capacity, good sound quality, resistance to
external signal interference and direct interface to digital switching equipment
or digital microwave systems.
We plan to install backbone fiber optic cables containing up to 864 fiber
optic strands, which have significantly greater bandwidth than traditional
analog copper cables. Using current electronic transmitting devices, a single
pair of glass fibers used by our network can transmit up to 8.6 gigabits of data
per second or the equivalent of approximately 129,000 simultaneous voice
conversations, which is substantially more than traditional analog copper cable
installed in many current communications networks. We believe that continuing
developments in compression technology and multiplexing equipment will increase
the capacity of each fiber optic strand, thereby providing more bandwidth
carrying capacity at relatively low incremental costs. Our network is capable of
using the highest commercially available capacity transmission (OC192) and
thereby can handle advanced, capacity-intensive data applications such as voice
over Internet Protocol, video teleconferencing, Frame Relay, ATM, multimedia and
Internet-related applications.
In our intracity networks, we offer end-to-end fiber optic capacity, capable
of utilizing SONET capable ring architecture, which has the ability to route
customer traffic in either direction around its ring design thereby assuring
that fiber cuts do not interrupt service to customers on our networks. Our
networks are also capable of supporting DWDM (dense wave division multiplexing).
Currently, a state-of-the-art network operating system continuously monitors and
maintains quality control of networks on a 24-hour basis, alerts us of any
degradation or loss of fiber capacity and pinpoints the location of such
degradation. This network operating system also enables us to repair or replace
impaired fiber without any loss of service. In addition, the monitoring system
automatically reroutes traffic in the event of a catastrophic break in the
system, enabling us to ensure that our customers obtain continuous service.
FRANCHISE, LICENSE AND RELATED AGREEMENTS
When we decide to build a fiber optic communications network, our corporate
development staff seeks to obtain the necessary rights-of-way and governmental
authorizations. In some jurisdictions, a construction permit is all that is
required. In other jurisdictions, a license agreement, permit or franchise is
also required. Such licenses, permits and franchises are generally for a term of
limited duration. Where possible, rights-of-way are leased under multi-year
agreements with renewal options and are generally nonexclusive. We lease
underground conduit and pole space and other rights-of-way from entities such as
ILECs, utilities, railroads, IXCs, state highway authorities, local governments
and transit authorities. We strive to obtain rights-of-way that afford us the
opportunity to expand our communications networks as business develops. We
currently have all rights-of-way and other authorizations necessary for our
intracity networks in the New York, Philadelphia, and Chicago metropolitan
areas.
NEW YORK. We have entered into a 15-year nonexclusive franchise agreement
(the "NYC Franchise Agreement") with New York City to install, operate, repair,
maintain, remove and replace cable, wire, fiber or other transmission medium
that may be used in lieu of cable, wire or fiber on, over and under the
inalienable property of New York City in order to provide telecommunications
services which
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originate and/or terminate in or transit New York City. This agreement expires
in December 2008 and provides that we may submit a written petition to New York
City to renew the term of the franchise at least 12 months (but not more than 18
months) before the expiration of the 15 year term. However, New York City has no
obligation to renew this agreement. The City of New York has granted only seven
franchises to date. However, we are not aware of any limit on the number of
franchises that the City of New York may grant and believe that the City of New
York has begun the process that will result in the awarding of additional
licenses.
This agreement requires us to provide New York City with certain
telecommunications infrastructure and, by November 1999, to complete
construction of our initial network as described in the agreement. We believe
that we are on schedule to complete such construction. On December 21, 1998,
this agreement was amended to extend the period of time to June 30, 2001 to
complete construction of the Initial Backbone to the borough of Staten Island.
Both New York City and we have the right, at any one time after December 20,
2000, upon six months notice, to renegotiate in good faith certain terms of this
agreement, including the annual compensation payable to New York City, based on
changes in technological, regulatory or market conditions which may occur after
the effective date of the agreement. If we cannot reach an agreement upon any
such renegotiation, the agreement will be subject to early termination on a date
which would be one half of the number of days between the date of the notice to
renegotiate and January 1, 2009.
Under the agreement, we are obligated to pay New York City an annual
franchise fee at a rate of 5% of Gross Revenues for each year of the franchise.
All revenues received directly or indirectly by us or any of our affiliates from
or in connection with telecommunications services which originate in, terminate
in, or transit New York City constitute "Gross Revenues" for purposes of the
agreement. Revenues that are generated from transmissions which transit New York
City, but also include transmission through other areas, are to be prorated. We
are obligated to pay a minimum franchise fee to the City of New York of $200,000
per year.
The agreement requires that we obtain the consent of New York City for any
acquisition of 5% or more of the shares of the Company by any person other than
Mr. Stephen A. Garofalo, Metromedia Company, Mr. Howard M. Finkelstein, Mr.
Peter Sahagen or any other 5% stockholder on the date of the consummation of our
Initial Public Offering.
We entered into a nonexclusive conduit occupancy agreement (the "Conduit
Occupancy Agreement") with Bell Atlantic Corporation in May 1993. This agreement
authorizes us to install our cable facilities in Bell Atlantic's conduit system
in New York. We are required to pay Bell Atlantic Corporation certain rates and
charges pursuant to the terms of this agreement. The Conduit Occupancy Agreement
is terminable without cause by either party upon three months' written notice.
Under certain circumstances, a petition may be brought to the Public Services
Commission requesting that it decide a dispute arising over termination prior to
the termination of the Conduit Occupancy Agreement.
On June 16, 1998, we entered into a nonexclusive franchise agreement with
the City of White Plains, New York, that grants us the necessary rights for our
expanded New York/New Jersey network in the White Plains area. Under this
agreement, we are obligated to pay the City of White Plains an annual franchise
fee at the rate of 5% of gross revenues generated from the network within the
White Plains area for fifteen years, renewable once. We do not anticipate that
this fee will result in a material cost to us. Upon termination of this
agreement, ownership of the telecommunications network in the White Plains area
will revert to the City of White Plains at fair market value.
PHILADELPHIA. In the Philadelphia area, we have obtained all necessary
rights-of-way and authorizations for the Philadelphia Network in the
Philadelphia metropolitan area under an ordinance from the City of Philadelphia.
The ordinance allows us, subject to certain conditions to be set forth under a
license agreement being currently negotiated with the City of Philadelphia, to
construct,
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maintain and operate, replace and remove a telecommunications system in, under
and across the public rights-of-way and city streets and/or to place such
telecommunications system within the existing facilities owned by Bell Atlantic
Corporation, PECO Energy Company, Southeastern Pennsylvania Transportation
Authority, Consolidated Rail Corporation or any other entity holding a grant by
way of ordinances from the City of Philadelphia within the Philadelphia
metropolitan area.
CHICAGO. In Chicago, we have also obtained the required franchises,
licenses, permits and other agreements needed to complete our Chicago Network.
In addition, we have entered into agreements with various entities, which
provide us with infrastructure of approximately 4,300 fiber miles along
approximately 40 route miles on key routes within our Chicago market, in
addition to the necessary easements and rights-of-way for the Chicago Network.
WASHINGTON D.C. In Washington, D.C., we have obtained rights-of-way and
authorizations for the Washington Network in the District of Columbia under a
Certificate of Public Convenience and are in the process of obtaining all
necessary permits for the network in the downtown area. We do not anticipate any
difficulty in obtaining such permits. We are currently negotiating the necessary
franchise agreements with certain municipalities that make up part of the
expanded Washington Network.
We are currently pursuing our efforts to obtain all rights-of-way and
authorizations for the build-out of our networks in Los Angeles, San Francisco,
Boston, Seattle, Dallas, Houston and Atlanta. We have recently signed a conduit
agreement within the Bay Area Rapid Transit right-of-way for a portion of the
network in the San Francisco area, and have obtained the necessary permits for
our intracity network in the downtown San Francisco area. In January 1999, we
entered into an agreement to acquire a provider of dark fiber that is
constructing an intracity network in Dallas. Consummation of this transaction is
pending and subject to customary conditions.
SALES AND MARKETING
Our sales and marketing strategy includes:
- positioning ourselves as the preferred carriers' carrier of broadband
communications infrastructure,
- focusing on high dollar volume corporate and government customers, and
- emphasizing the cost advantages which will allow us to lease our fiber
optic infrastructure at fixed prices which represent potentially
significant savings for our large volume carrier and corporate customers
relative to their present build or buy alternatives.
We also believe that communications carriers and corporate and government
customers will be attracted to our dark fiber product and our unmetered pricing
structure. Dark fiber is installed fiber optic cable which is not otherwise
carrying a signal originated by the service provider (i.e., the Company), but
which will carry a signal generated by the customer. We intend initially to
centralize our sales and marketing efforts on carrier customers through a
national sales team and we are currently in the process of hiring additional
sales professionals to focus on these customers. As we have constructed fiber
optic networks in new cities, we have hired sales forces in these areas to
target regional corporate, government and to a lesser extent carrier customers
and we plan to continue this strategy.
CUSTOMERS
CARRIERS. We expect that communications carriers will account for a
majority of our business. We currently target the major carriers, such as
resellers, data services, RBOCs, IXCs, CLECs, ISPs, wireless providers, and
major information service providers. We believe that we can compete effectively
with other providers due to our rapid deployment, pricing, reliability, customer
service and the capacity of our networks. We traditionally lease dark fiber to
communications carriers, providing them with point-to-point and IXC point of
presence ("POP") to end user non-switched access, which connects their customers
to our network. This enables them to eliminate or reduce costly access charges.
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We have entered into contracts with approximately 19 communications
carriers, including providers of wireless, cellular, internet, interexchange and
competitive local exchange services, as of January 1, 1999. In addition, we are
currently in the process of negotiating agreements with certain other major
communications carriers and will continue to target such carriers in the future.
NEXTLINK AGREEMENTS. In June 1997 and February 1998, we entered into two
major agreements with NextLink New York, L.L.C., a CLEC, or its affiliates
(collectively, "NextLink") which provide NextLink with certain exclusive
long-term rights to certain fiber strands and innerducts on specified intracity
routes.
Pursuant to the agreements, we received $11.0 million in scheduled up-front
payments and will receive an additional $92.0 million in additional payments
from NextLink. Of the $92.0 million, $11.75 million was paid up-front and $80.25
million has been placed in escrow and will be released to us periodically as
delivery of the fibers and innerducts are completed during 1998 and 1999 in
accordance with the agreement. We have also entered into a third agreement with
NextLink that provides for the sharing of certain construction costs in
connection with the build-out of our Chicago network.
WINSTAR AGREEMENTS. We are a party to agreements with WinStar
Communications, Inc., a national CLEC ("WinStar"), for long term leases of
high-capacity fiber optic infrastructure on our intracity networks in the New
York, Washington, D.C., Philadelphia, Chicago and San Francisco areas and on our
intercity network from New York to Washington, D.C. Pursuant to the agreements,
we will receive in excess of $40.0 million in payments from WinStar.
CORPORATE/GOVERNMENT CUSTOMERS. We expect that our corporate and government
customers, including members of the international financial and commercial
community, will primarily be entities with multiple locations and high volume
communications requirements. We expect to provide these customers with dedicated
point-to-point communications that have the capacity to carry a wide range of
communications services (e.g., high speed intranet access). We offer our
high-bandwidth services to such customers at prices that are lower than those
currently offered by regulated CLECs and ILECs. However, our customers currently
provide their own transmission or switching equipment.
We believe that we can effectively compete for corporate and government
customers based upon price, nonmetered usage, reliability and solutions tailored
to the customers' needs. In addition, our NY Network utilizes, and the other
intracity networks will permit use of, SONET technology, which offers
reliability that we believe is generally superior to that provided by the ILECs.
We currently have dark fiber infrastructure leasing arrangements with a variety
of financial services firms, including investment and commercial banks,
securities and accounting firms and a financial exchange, although we have not
yet completed installation of the dark fiber to be leased pursuant to certain of
the contracts.
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COMPETITION
Fiber optic systems are currently under construction both locally and
nationally. In New York City, for example, seven franchisees have been granted
the right to install and operate a telecommunications network within the city.
Development of fiber optic networks is also continuing on a national scale. The
construction of these networks enables their owners to lease access to their
networks to other communications carriers or large corporate or government
customers seeking high bandwidth capacity, without these customers having to
incur costly expenditures associated with building networks of their own.
Alternatively, some network owners may choose to use their infrastructure to
provide switched voice and data services, competing directly with ILECs and
IXCs. Currently, we do not provide such services or plan to provide such
services.
In New York City, Philadelphia, Washington, D.C., and the other cities where
we plan to deploy fiber optic communications networks, we face significant
competition from the ILECs, which currently dominate their local communications
markets. We also face competition from CLECs and other potential competitors in
these markets and will face competition in the cities in which we plan to build
our networks. Many of our competitors have financial, management and other
resources substantially greater than ours, as well as other competitive
advantages over us, including established reputations in the communications
market.
Various communications carriers already own fiber optic cables as part of
their communications networks. Accordingly, each of these carriers could, and
some do, compete directly with us in the market for leasing fiber capacity. In
addition, although CLECs generally provide a wider array of services to their
customers than we presently provide to our customers, CLECs nevertheless
represent an alternative means by which our potential customers could obtain
direct access to an IXC POP or other site of the customer's choosing. Thus,
CLECs could compete with us.
Some communications carriers and local cable companies have extensive
networks in place that could be upgraded to fiber optic cable, as well as
numerous personnel and substantial resources to undertake the requisite
construction to so equip their networks. To the extent that communications
carriers and local cable companies decide to equip their networks with fiber
optic cable, they are potential direct competitors provided that these
competitors are willing to offer this capacity to all of their customers.
We believe that as competition in the local exchange market develops, a
fundamental division between the needs of corporate, governmental and
institutional end users and residential end users will drive the creation of
differentiated communications services and service providers. We believe that
the CLECs, IXCs, ISPs, wireless carriers and corporate and government customers
on which we focus will have distinct requirements, including maximum
reliability, consistent high quality transmissions, capacity for highspeed data
transmissions, diverse routing and responsive customer service. We believe that
we will be able to satisfy the needs of such customers.
REGULATION
As explained in the section of this Prospectus entitled "Business--The
Company," we plan to offer telecommunications infrastructure to customers in two
forms. First, customers may lease fiber optic capacity from us and attach their
own transmission equipment (we call this "dark fiber"). Second, customers will
have the option to lease smaller amounts of broadband capacity (less than a full
strand of fiber) of facilities where we operate our own transmission equipment
(we call this "transmission services"). These two offerings are subject to
varying degrees of regulation in each of the jurisdictions in which we operate.
In the United States, some aspects of our services are regulated by the FCC and
various State regulatory bodies. In other countries where we operate we may also
be subject to regulations by the agencies having jurisdiction over the provision
of telecommunications services.
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FEDERAL
In the United States, federal telecommunications law directly shapes the
market in which we compete. Telecommunications facilities and services are
subject to varying degrees of regulation by the FCC pursuant to the provisions
of the Communications Act of 1934 (the "Communications Act"), as amended by the
1996 Telecom Act and the FCC regulations issued under these laws.
Federal telecommunications law imposes special legal requirements on "common
carriers" who engage in "interstate or foreign communication by wire or radio,"
and on telecommunications carriers." Telecommunications carriers and common
carriers are essentially the same, and are companies that provide communications
services "directly to the public" or to all potential users on an indiscriminate
basis subject to standardized rates, terms, and conditions.
DARK FIBER. We believe that we are not a "telecommunications carrier" or
"common carrier" with respect to our leasing of dark fiber, and therefore that
these leases are not subject to special legal requirements applicable to such
carriers. First, we do not believe that the leasing of dark fiber is a
"telecommunications service" that is subject to FCC regulation. The FCC
generally regulates "communication by wire or radio" or the "transmission" of
"information of the users' choosing," neither of which describes the leasing of
dark fiber. Second, we do not intend to offer dark fiber facilities as a common
carrier, I.E., to all potential users on an indiscriminate basis. Instead, we
intend to enter into individualized negotiations on a selective basis with
prospective lessees of our dark fiber to determine whether and on what terms to
serve each potential lessee. Our dark fiber offerings should therefore not be
subject to the common carrier jurisdiction of the FCC or to the common carrier
provisions of the Communications Act.
If our offering of dark fiber facilities were deemed to constitute
"telecommunications," then our revenues from such leases to end users (but not
to other telecommunication carriers), whether or not provided on a common
carrier basis, would become subject to assessment for the FCC's Universal
Service Fund, a fund that was established by the FCC pursuant to the 1996
Telecom Act to assist in ensuring the universal availability of basic
telecommunications services at affordable prices. Such assessments could create
a liability equal to a percentage of these gross revenues. We anticipate that
the rate of assessment would be approximately 4% of gross interstate and 1% of
gross intrastate end-user revenues for the year 1999, and may be higher in
subsequent years. We may also be liable for assessments by state commissions for
state universal service programs.
TRANSMISSION SERVICES. With respect to our offering of telecommunications
transmission services, we will likely offer some of these services as a common
carrier (I.E., we will offer such transmission services to all potential users
indiscriminately) and therefore will be subject to the regulatory requirements
applicable to these carriers. For example, we will be required, with respect to
our transmission services, to (1) provide such services indiscriminately upon
any reasonable request; (2) charge rates and adopt practices, classifications
and regulations that are just and reasonable; and (3) avoid unreasonable
discrimination in charges, practices, regulations, facilities and services. We
may also be required to file tariffs setting forth the rates for our services.
Under current FCC policies, these regulatory requirements should not impose any
substantial burdens on us. The FCC has recently determined, for example, that
providers of "access" services (intracity transmission services used to
originate and/or terminate interstate and foreign communications) need not file
tariffs and may offer such services to customers on a private, contractual
basis. Our revenues from transmission services will also be subject to FCC
Universal Service Fund assessments as discussed above, to the extent that these
services are purchased by end users and to other FCC fees and assessments. Since
the revenues of our competitors will be subject to comparable assessments, this
should not reduce our competitiveness.
Also, having some of our services regulated as a "telecommunications
carrier" will give us certain legal benefits. In particular, we will be
entitled, like other CLECs, to insist upon access to the existing
telecommunications infrastructure by interconnecting our fiber-optic networks
with ILEC central offices
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and other facilities. Under the 1996 Telecom Act, ILECs must, among other
things: (i) interconnect at any technically feasible point and provide service
equal in quality to that provided to others, (ii) provide unbundled access to
network elements, and (iii) provide access to their poles, ducts, conduits and
other rights-of-way.
ILECs must also provide "physical collocation" for other telecommunications
carriers. Physical collocation is an offering by an ILEC that enables another
telecommunications carrier to enter the ILEC's premises to install, maintain and
repair its own equipment that is necessary for interconnection or access to the
ILEC's network elements. An ILEC allocates reasonable amounts of space to
carriers on a first-come first-served basis. If space limitations or practical
or technical reasons prohibit physical collocation, an ILEC must offer "virtual
collocation," by which the other carrier may specify ILEC equipment to be
dedicated to its use and electronically monitor and control communications
terminating in such equipment. We intend, in some instances, to collocate
portions of our network on the premises of certain ILECs. Our ability to do this
on a cost-effective basis will depend on the rates, terms and conditions
established for collocation, which will be established by state regulators in
arbitration proceedings and therefore may vary from one state to the next.
The FCC has responsibility under the 1996 Telecom Act's interconnection
provisions to determine what elements of an ILEC's network must be provided to
competitors on an unbundled basis. The FCC has decided not to declare dark fiber
an unbundled network element under these provisions. This decision is currently
subject to petitions for reconsideration before the FCC and is being challenged
in Supreme Court. In addition, a federal district court in North Carolina has
interpreted the 1996 Telecom Act to include dark fiber as a network element.
In addition, the FCC has announced that state commissions may decide to add
network elements to the FCC's list of elements that are required to be unbundled
by carriers. To date, state commissions in several states (including New York)
have either refused to require the ILECs to offer dark fiber to competitors or
have stated that the issue would be addressed at a later time. On the other
hand, other state commissions have found dark fiber to be a network element and
required the ILECs to offer it on an unbundled basis to CLECs. Decisions by
either the FCC or additional states to require unbundling of ILEC dark fiber or
geographic extension of the ruling of the federal district court in North
Carolina could decrease the demand for our dark fiber, and thereby have an
adverse effect on the results of our operations.
ILECs, CLECs and IXCs are subject to additional federal telecommunications
laws. These laws may affect our business by virtue of the interrelationships
that exist among us and many of these regulated telecommunications entities. For
example, the FCC recently issued an order requiring, among other things, that
access charges (fees charged by ILECs to IXCs for use of local telephone
facilities for the origination and termination of long-distance calls) shift in
part from being usage driven to a fixed flat cost-based structure. The FCC has
also asked for public comments on proposed rules that would grant ILECs greater
pricing flexibility for their access services (both switched and non-switched),
which may permit the ILECs to compete more effectively against some of our
service offerings. While it is not possible to predict the precise effect the
access charge changes will have on our business or financial condition, the
reforms will reduce access charges paid by IXCs, likely making the use of ILEC
facilities by IXCs more attractive, which could have a material adverse effect
on the use of our fiber optic telecommunications networks by IXCs.
STATE
The 1996 Telecom Act prohibits state and local governments from enforcing
any law, rule or legal requirement that prohibits or has the effect of
prohibiting any person from providing any interstate or intrastate
telecommunications service. This provision of the 1996 Telecom Act should enable
us and our customers to provide telecommunications services in states that
previously prohibited competitive entry.
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However, states retain jurisdiction under the 1996 Telecom Act to adopt
regulations necessary to preserve universal service, protect public safety and
welfare, ensure the continued quality of communications services and safeguard
the rights of consumers.
States continue to determine the rates that ILECs can charge for most of
their services. They are also responsible for mediating and arbitrating ILEC
interconnection arrangements with other carriers if voluntary agreements are not
reached. Accordingly, state involvement in local telecommunications services is
substantial.
Each state (and the District of Columbia, which is treated as a state for
the purpose of regulation of telecommunications services) has its own statutory
scheme for regulating providers of certain telecommunications-related services
as "common carriers," as "public utilities," or under similar rubrics. As with
the federal regulatory scheme, we believe that the offering of dark fiber
facilities is not subject to this type of regulation in most jurisdictions in
which we currently have or plan to construct facilities. Our offering of
transmission services (as distinct from dark fiber capacity), however, will
likely be subject to regulation in each of these jurisdictions to the extent
that these services are offered for intrastate use. Even though many of our
facilities will be physically intrastate, we anticipate that most customers will
use our facilities and services for the purpose of originating and/or
terminating interstate and foreign communications. Under current FCC policies,
any dedicated transmission service or facility that is used more than 10% of the
time for the purpose of interstate or foreign communication is subject to FCC
jurisdiction to the exclusion of any state regulation. Therefore, only a small
portion of our business should be subject to state regulation.
State regulation of the telecommunications industry is changing rapidly, and
the regulatory environment varies substantially from state to state. Our
subsidiaries are currently authorized to provide intrastate telecommunications
services in California, Connecticut, Delaware, District of Columbia, Illinois,
Maryland, Massachusetts, New Jersey, New York, Pennsylvania, Rhode Island,
Virginia, and Washington, and have an application pending in Oregon. At present,
we do not anticipate that the regulatory requirements to which we will be
subject in the states in which we currently intend to operate will have any
material adverse effect on our operations. These regulations may require, among
other things, that we obtain certification to operate, and that we provide
notification of, or obtain authorization for, certain corporate transactions. We
will incur certain costs to comply with these and other regulatory requirements
such as the filing of tariffs, submission of periodic financial and operational
reports to regulators, and payment of regulatory fees and assessments, including
contributions to state universal service programs. In some jurisdictions, our
pricing flexibility for intrastate services may be limited because of
regulation, although our direct competitors will be subject to similar
restrictions. However, we make no assurances that future regulatory, judicial,
or legislative action will not materially adversely affect us.
In response to the 1996 Telecom Act, Bell Atlantic Corporation "unbundled"
its local loop in October 1996. As a result, carriers such as us will be
permitted to access Bell Atlantic's existing wiring infrastructure in buildings
on an economical basis, which we believe enhances the strategic value of the NY
Network to potential customers. By virtue of the unbundling, Bell Atlantic
Corporation must make a significant portion of its in-house apartment wiring
available for $2 per month per apartment. We expect that the availability of an
unbundled local loop will enable new carriers to enter the residential voice
market on a competitive basis with Bell Atlantic Corporation, and these carriers
will be potential customers for our services.
LOCAL
In addition to federal and state laws, local governments exercise legal
authority that may impact our business. For example, local governments, such as
the City of New York, typically retain the ability to license public
rights-of-way, subject to the limitation that local governments may not prohibit
persons
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from providing telecommunications services. Local authorities affect the timing
and costs associated with our use of public rights-of-way. These regulations may
have an adverse effect on our business.
FEDERAL REGULATION OF INTERNATIONAL SERVICE
Various regulatory requirements and limitations also will influence our
business as it attempts to enter international markets. Although we have not
fully determined our international business strategy, we have entered into a
50/50 joint venture, ION, with a subsidiary of Racal that contemplates jointly
acquiring and selling international, facilities-based telecommunications
capacity between the U.S. and the United Kingdom and possibly between the U.S.
and other markets. ION is a U.S. international common carrier subject to U.S.
regulation under Title II of the Communications Act, and, depending on our
specific business plans, it is possible that we will also become a U.S.
international common carrier subject to the same regulations. Under current FCC
rules, international carriers that do not exercise market power and that are not
affiliated with dominant foreign carriers (carriers possessing market power in
their local markets) are subject to relatively relaxed U.S. regulation as
non-dominant international carriers. As such a non-dominant common carrier, ION
is and we would be subject to, among other policies, the common carrier
obligations of nondiscrimination. In addition, FCC rules prohibit U.S. carriers
from bargaining for special concessions from certain foreign partners. ION is
and we would also be required, under Sections 214 and 203 of the Communications
Act to obtain authorization and file an international service tariff containing
rates, terms and conditions prior to initiating service. As a non-dominant
carrier, ION has sought and we would be eligible to seek "global" authorization
under Section 214 to operate as facilities-based and/or resale carriers.
International carriers are also subject to certain annual fees and filing
requirements, such as the requirement to file contracts with other carriers,
including foreign carrier agreements, and reports setting forth international
circuit, traffic and revenue data. Failure to obtain an appropriate U.S. license
for international service or the revocation of a license could materially
adversely affect our future operations.
To the extent that we and ION operate as international common carriers, we
and ION may also be required to comply with the FCC's ISP which defines the
permissible boundaries for U.S. carriers and their foreign correspondents to
settle the cost of terminating each other's traffic over their respective
networks. The ISP is designed to eliminate a foreign carrier's opportunity to
discriminate among different U.S. carriers by bargaining for accounting rates or
other terms that benefit the foreign carrier but is inconsistent with the U.S.
public interest. The ISP generally provides that U.S. carriers may only enter
into foreign carrier agreements for the exchange of switched traffic that
contain the same accounting rate and settlement rate (typically one-half of the
accounting rate) offered to all other U.S. carriers. The ISP also requires U.S.
carriers to adhere to the principle of proportionate return so that competing
U.S. carriers have comparable opportunities to receive the return traffic that
reduces the marginal cost of providing international service.
If we provide public switched services over international private lines, we
would be subject to FCC rules governing such activity rather than to the ISP.
These rules limit us from providing switched services over international private
lines between the United States and certain countries and impose certain
conditions on carriers engaging in such activity.
The FCC continues to refine its international service rules to promote
competition, reflect and encourage liberalization in foreign countries, and
reduce accounting rates toward cost. Among other things, the FCC has recognized
the advent of competition in the U.K. market by designating the U.K. as a
country that offers U.S. carriers effective competitive opportunities. The FCC
has also amended its rules to reflect the U.S. participation in the WTO
Agreement on Basic Telecommunications Services in which 72 countries have agreed
to eliminate barriers to competition in their markets for basic
telecommunications services. For example, the FCC has decided to permit U.S.
carriers to enter into "flexible" termination arrangements with carriers in WTO
countries, unless such arrangements would
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not promote competition. By taking these actions, the FCC has relaxed or
eliminated regulatory limitations on many U.S. carrier services between the U.S.
and the U.K. (as well as between the U.S. and other members of the WTO). The FCC
has also proposed to eliminate the ISP contract requirements for agreements with
certain carriers in certain foreign countries. In addition, the FCC has
established reduced "benchmark" rates for the amounts U.S. carriers will be
allowed to pay foreign carriers for terminating U.S.-originated traffic. For
example, effective as of January 1, 1999, U.S. carriers may ask the FCC to
require that U.S. carriers pay foreign carriers in "high income" countries such
as the United Kingdom no more than $.15 per minute to terminate such calls.
Different rates would apply at different deadlines in different countries
depending on the countries' income level.
Regulation of the international telecommunications industry is changing
rapidly. We are unable to predict how the FCC will resolve the various pending
international policy issues and the effect of such resolutions on us.
REGULATION OF INTERNATIONAL OPERATIONS
Our international services would also be subject to regulation in other
countries where we operate. Such regulation, as well as policies and regulations
on the European Union level, may impose separate licensing, service and other
conditions on our international service operations, and these requirements may
have a material adverse impact on the Company. The following discussion is
intended to provide a general outline of certain regulations and current
regulatory posture in certain foreign jurisdictions in which we currently
operate or intend to operate, and is not intended as a comprehensive discussion
of such regulations or regulatory posture. Local laws and regulations differ
significantly among these jurisdictions, and, within such jurisdictions, the
interpretation and enforcement of such laws and regulations can be
unpredictable.
THE EUROPEAN UNION
The European Union (the "EU") was established by the Treaty of Rome and
subsequent treaties. EU member states are required to implement directives
issued by the European Commission (the "EC") and the European Council by passing
national legislation. The EC and European Council have issued a number of key
directives establishing basic principles for the liberalization of the EU
telecommunications market. This basic framework has been advanced by a series of
harmonization directives, which include the so-called Open Network Provision
directives and the Licensing Directive of April 1997 and the Interconnection
Directive of June 1997, which address the procedures for granting license
authorizations and conditions applicable to such licenses and the
interconnection of networks and the interoperability of services as well as the
achievement of universal service. The Licensing Directive sets out framework
rules for the procedures associated with the granting of national authorizations
for the provision of telecommunications services and for the establishment or
operation of any infrastructure for the provision of telecommunications
services. It distinguishes between "general authorizations," which should
normally be easier to obtain since they do not require an explicit decision by
the national regulatory authority, and "individual licenses." EU member states
may impose individual license requirements for the establishment and operation
of public telecommunications networks and for the provision of voice telephony,
among other things. Consequently, ION's operations in the U.K., our operation
with respect to the German Network and European Network may require that ION or
the Company, respectively, be subject to an individual licensing system rather
than to a general authorization in the majority of EU member states. In some
countries where we operate, we may also be required to contribute to a fund for
the provision of universal service. The United Kingdom and each other EU member
state in which ION currently conducts or we intend to conduct our business has a
different regulatory regime and such differences are expected to continue. The
requirement that ION or we obtain necessary approvals varies considerably from
country to country.
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UNITED KINGDOM
The Telecommunications Act of 1984 (the "U.K. Act") provides a licensing and
regulatory framework for telecommunications activities in the United Kingdom.
The Secretary of State for Trade and Industry at the Department of Trade and
Industry (the "Secretary of Trade") is responsible for granting licenses under
the U.K. Act and for overseeing telecommunications policy, while the Director
General of Telecommunications (the "Director General") and his office (the
Office of Telecommunications ("OFTEL")) are responsible, among other things, for
enforcing the terms of such licenses. Operators wishing to use their own
facilities to provide international services are currently required to obtain an
international facilities license ("IFL"). An IFL licenses the running of
telecommunication systems within the U.K. and permits the licensee to connect
U.K. systems to overseas systems, and to offer international services subject to
certain restrictions. ION was awarded an IFL on 9 December 1998. The U.K.
Government is currently consulting on proposals to amend licenses to create one
license authorizing both international and domestic services. The changes are
expected to come into force in 1999 and may result in ION being licensed to
provide both international and domestic services. We have not applied for an IFL
or any other authorization for the U.K. portion of the European Network. OFTEL
is consulting on which operators will have the right and obligation to
interconnect with the networks of other operators under the regime established
by the Interconnection Directive. OFTEL is expected to announce its findings
shortly. Currently all operators with IFL licenses have the right and obligation
to interconnect, and this position is not expected to change. Therefore ION has
the right to request and receive interconnection from all other operators deemed
to be entitled to such rights and obligations (as notified by the Director
General) and also the obligation to offer to enter into an agreement to
interconnect at the request of any such operator. The U.K. Government is
currently consulting on changing the obligation to offer to enter into an
agreement to interconnect to an obligation to negotiate with a view to
concluding an interconnection agreement in response to the concern raised by
operators that the current obligation exceeds the requirements of the
Interconnection Directive. The U.K. Government passed the Competition Act 1998
on 9 November 1998 which introduces concurrent powers to the industry specific
regulators and the Director General of Fair Trading for the enforcement of
prohibitions against anti-competitive behavior modeled on Articles 85 and 86 of
the Treaty of Rome. The Act introduces into U.K. legislation prohibitions on the
abuse of a dominant position and anti-competitive agreements, and provides for
third party rights of action, stronger investigative powers, interim measures
and effective enforcement powers. The new rules are expected to come into force
on 1 March 2000. The Act gives the Director General power to exercise concurrent
powers with the Director General of Fair Trading in relation to "commercial
activities connected with telecommunications". The Act will enable third parties
to seek court orders directly against telecommunications operators who are in
breach of the prohibitions contained in the Act and seek damages rather than
have to wait for the Director General to issue an enforcement order. Depending
on how these provisions of the Act are implemented, it may give the Company (and
its competitors) greater ability to challenge anti-competitive behavior in the
U.K. telecommunications market.
GERMANY
The German Telecommunications Act of July 25, 1996 (the "German
Telecommunications Act") liberalized all telecommunications activities. Under
the German Telecommunications Act, voice telephony was liberalized as of January
1, 1998. The German Telecommunications Act has been complemented by several
Ordinances. The most significant Ordinances concern license fees, rate
regulation, interconnection, universal service, frequencies and customer
protection. Under the German regulatory scheme, licenses can be granted within
four license classes. A license is required for operation of transmission lines
that extend beyond the limits of a property and that are used to provide
telecommunications services for the general public. The licenses required for
the operation of transmission lines are divided into 3 infrastructure license
classes: mobile telecommunications (license
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class 1); satellite (license class 2); and telecommunications services for the
general public (license class 3). Beside the infrastructure licenses, an
additional license is required for the provision of voice telephony services on
the basis of self-operated telecommunications networks (license class 4). A
class 4 license does not include the right to operate transmission lines.
According to the License Fees Ordinance, a nationwide class 4 license costs a
onetime fee of DM 3,000,000. The costs for a territorial class 3 license will be
determined by the Regulierungsbehorde fur Telekommunikation und Post (the
"RegTP") and is dependent on the population and the geographical area covered by
the territorial class 3 license. A nationwide territorial class 3 license costs
DM 10,600,000. Licensees that operate transmission lines crossing the boundary
of a property have the right to install transmission lines on, in and above
public roads, squares, bridges and public waterways without payment; however,
when installing transmission lines a planning agreement must be obtained from
the relevant authorities. A company which operates a public telecommunications
network has the right to receive favorable interconnection rates from Deutsche
Telekom, as a dominant carrier. If the company does not agree with the offered
rates or Deutsche Telekom refuses to interconnect for whatever reason, the
company can refer the case to the RegTP which shall decide upon the request for
interconnection within a period of six weeks; if the RegTP decides to extend
this deadline, it must at the latest decide within ten weeks of the request.
Whether, and under which conditions, carrier to carrier operators will receive
favorable interconnection rates or less favorable "special network access rates"
from Deutsche Telekom depends largely on whether they operate a "public
telecommunications network." No definition of "public telecommunications
network" has yet been provided. A public hearing on the regulatory treatment of
carrier networks--defined in the German Telecommunications Act as a
telecommunications network to which customers are not directly connected and
which interconnects access networks--and public telecommunications networks in
respect of interconnection has recently been conducted. The RegTP is expected to
publish the outcome of the hearing which shall include the RegTP's understanding
of the constituting elements of a public telecommunications network shortly. In
December 1998, the RegTP presented its preliminary views on the results of the
hearing to an audience of interested parties in Bonn. According to this
presentation, a carrier network constitutes a "public telecommunications
network" if it consists of at least one switch and more than two connected
transmission lines and is used to provide telecommunications services to the
public, irrespective of whether or not customers are directly or (in the case of
a carrier network) indirectly connected to such network. The RegTP indicated
that it did not intend to establish a minimum number of points of
interconnection that are required for interconnections with Deutsche Telekom.
However, the RegTP acknowledged that carrier networks with few points of
interconnection may cause atypical traffic patterns on Deutsche Telekom's
network which may create additional costs to Deutsche Telekom. The RegTP
indicated that Deutsche Telekom will be allowed to recover its additional costs
incurred due to atypical traffic patterns from the operations responsible for
such traffic patterns if and to the extent that Deutsche Telekom can prove such
costs. It is expected that the RegTP's position will become clearer once the
RegTP has published its views in writing in the official journal. In view of
this outcome of the public hearing, Deutsche Telekom has terminated a number of
interconnection agreements in December 1998 and has announced that it will offer
new standard interconnection agreements. In the last few months of 1998 and in
view of the public hearing, Deutsche Telekom was only willing to enter into
interim interconnection agreements and only if the companies requesting
interconnection have direct customer access, have a minimum of eight points of
interconnection in the startup phase or commit to establish this number of
points of interconnection as ports for interconnection become available and
upgrade the network to 23 points of interconnection in the initial phase. The
same number of points of interconnection was requested by Deutsche Telekom in a
special network offer for carrier networks. The rates offered by Deutsche
Telekom to carrier network operators were substantially higher than
interconnection rates. In January 1999, Deutsche Telekom presented new drafts
for interconnection agreements which significantly limit the ability of
interconnection partners of Deutsche Telekom to obtain Deutsche Telekom's
services in connection with an interconnection at favorable interconnection
rates. Deutsche Telekom, for example, sets forth requirements to establish
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additional points of interconnection if traffic at existing points of
interconnection increases beyond certain thresholds. These drafts are currently
subject to intense discussions between Deutsche Telekom, other
telecommunications companies and representatives of the RegTP. The rates of
Deutsche Telekom's services in conjunction with interconnection and special
network access are subject to regulatory approval; such approval is typically
granted for a limited period of time. Licensed operators are under an obligation
to present their standard terms and conditions to the RegTP. The RegTP may,
based upon certain criteria, decide not to accept these terms and conditions. We
may become subject to universal service financing obligations. Currently, it is
unlikely that the universal service financing system will be implemented in
Germany in the foreseeable future. We have not made any regulatory filings with
respect to the German Network or the German portion of the European Network.
EMPLOYEES
As of January 1, 1999, we employed 126 people. Our employees are not
represented by any labor union. We consider our relationship with employees to
be good.
PROPERTIES
Our principal properties currently are the NY Network and its component
assets. We own substantially all of the communications equipment required for
our business. Our installed fiber optic cable is laid under the various
rights-of-way held by us. Please refer to the section of this Prospectus
entitled "--Build-out of Networks--Rights-of-Way." Our other fixed assets are
located at various leased locations in the geographic areas that we serve. Our
executive and administrative offices are located at our principal office at One
North Lexington Avenue, White Plains, New York. We lease this space (currently
approximately 21,000 square feet) under an agreement that expires in March 2003.
Our sales offices are located at 685 Third Avenue, New York, New York. We lease
this space (approximately 9,670 square feet) under an agreement that expires in
September 2003. We lease additional space (currently 8,710 square feet) at 60
Hudson Street, New York, New York, from Hudson Telegraph Associates under an
agreement that expires in March 2010. We also lease 2,665 square feet of sales
space in Malvern, Pennsylvania, and 3,438 square feet of sales space in McLean,
Virginia.
LEGAL PROCEEDINGS
On or about October 20, 1997, VCNY commenced an action against the Company,
Stephen A. Garofalo, Peter Silverman, the law firm of Silverman, Collura,
Chernis & Balzano, P.C., Peter Sahagen, Sahagen Consulting Group of Florida
(collectively, the "Sahagen Defendants") and Robert Kramer, Birdie Capital
Corp., Lawrence Black, Sterling Capital LLC, Penrush Limited, Needham Capital
Group, Arthur Asch, Michael Asch and Ronald Kuzon (the "Kramer Defendants") in
the United States District Court for the Southern District of New York (No. 97
CIV 7751) (the "VCNY Litigation"). On or about May 29, 1998, VCNY filed an
amended complaint. In its complaint, as amended, VCNY alleges four causes of
action in connection with its sale of 900,000 shares (not adjusted for
subsequent stock splits) of Class A Common Stock to Peter Sahagen and the Kramer
Defendants on January 13, 1997. The four causes of action include: (i) violation
of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated under such Act; (ii) fraud and fraudulent concealment; (iii) breach
of fiduciary duty; and (iv) negligent misrepresentation and omission. On the
first and second causes of action, VCNY is seeking, among other things,
rescission of the VCNY Sale, or alternatively, damages in an amount which we
cannot currently ascertain but believe to be in excess of $36 million, together
with interest. On the third and fourth causes of action, VCNY is seeking damages
in an amount which we cannot currently ascertain but believe to be in excess of
$36 million, together with interest. VCNY is also seeking punitive damages in
the amount of $50 million, reasonable legal fees and the cost of this action.
All the defendants, including the Company and Stephen A. Garofalo, have moved to
dismiss VCNY's amended complaint.
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On or about June 12, 1998, Claudio E. Contardi commenced an action against
Peter Sahagen, Sahagen Consulting Group of Florida and the Company in the United
States District Court for the Southern District of New York (No. 98 CIV 4140).
Mr. Contardi alleges a cause of action for, among other things, breach of a
finder's fee agreement entered into between Mr. Sahagen and Mr. Contardi on or
about November 14, 1996 and breach of an implied covenant of good faith and fair
dealing contained in the finder's fee agreement. Mr. Contardi is seeking, among
other things, a number of shares of the Company which we cannot currently
ascertain but believe to be approximately 225,000 shares (calculated as of the
date on which the complaint was filed) or damages in an amount which we cannot
currently ascertain but believe to be approximately $4.9 million (calculated as
of the date on which the complaint was filed) and all costs and expenses
incurred by him in this action. We have filed an answer to the complaint and
have raised affirmative defenses.
We intend to vigorously defend both these actions because we believe that we
acted appropriately in connection with the matters at issue in these two cases.
However, we cannot assure you that we will not determine that the advantages of
entering into a settlement outweigh the risk and expense of protracted
litigation or that ultimately we will be successful in defending against these
allegations. If we are unsuccessful in defending against these allegations, an
award of the magnitude being sought in the VCNY Litigation would have a material
adverse effect on our financial condition or results of operations.
In addition, we are subject to various claims and proceedings in the
ordinary course of business. Based on information currently available, we
believe that none of such current claims, or proceedings, individually or in the
aggregate, including the VCNY Litigation and the Contardi litigation, will have
a material adverse effect on our financial condition or results of operations,
although we can make no assurances in this regard.
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MANAGEMENT
The directors and executive officers of the Company and their ages as of
January 1, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION HELD
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Stephen A. Garofalo.................................. 47 Chairman of the Board and Chief Executive Officer
Howard M. Finkelstein................................ 45 President, Chief Operating Officer and Director
Vincent A. Galluccio................................. 52 Senior Vice President and Director
Gerard Benedetto..................................... 41 Vice President--Chief Financial Officer
Charlotte G. Denenberg............................... 51 Vice President--Chief Technology Officer
Nicholas M. Tanzi.................................... 40 Vice President--Sales
Silvia Kessel........................................ 48 Executive Vice President and Director
John W. Kluge........................................ 84 Director
David Rockefeller.................................... 83 Director
Stuart Subotnick..................................... 56 Director
Arnold L. Wadler..................................... 55 Executive Vice President, General Counsel, Secretary
and Director
Leonard White........................................ 59 Director
</TABLE>
STEPHEN A. GAROFALO founded the Company in April 1993, and has been serving
as Chairman of the Board of Directors since the Company's inception. Mr.
Garofalo served as Chief Executive Officer since October 1996, as President from
1993 to 1996 and as Secretary from 1993 to 1997. From 1979 to 1993 Mr. Garofalo
served as president and chief executive officer of F. Garofalo Electric Co.,
Inc., an electrical contractor.
HOWARD M. FINKELSTEIN has been President, Chief Operating Officer and a
Director of the Company since April 1997. Prior to joining the Company, Mr.
Finkelstein was employed by various affiliates of Metromedia Company for 16
years. His most recent position was as Executive Vice President and Chief
Operating Officer of Metromedia International Telecommunications, Inc. From 1984
to 1993, Mr. Finkelstein served as President of Metromedia Communications
Corporation, a national long distance telecommunications carrier. In addition,
Mr. Finkelstein served as Executive Vice President and Chief Operating Officer
of Metromedia Restaurant Group from 1993 to 1995. Mr. Finkelstein is a Director
of Multimedia Medical Systems, Incorporated, a privately held company.
VINCENT A. GALLUCCIO has been a Director of the Company since February 1997
and has served as President of ION since February 1998 and as a Senior Vice
President of the Company since December 1995. From January 1992 to October 1994,
Mr. Galluccio was employed by British Telecommunications plc, as a global sales
manager for network outsourcing operations. Prior to joining British
Telecommunications plc, Mr. Galluccio spent 25 years with International Business
Machines Corporation in various sales, marketing and business development
positions and was involved in both domestic and world trade assignments.
GERARD BENEDETTO has been Vice President--Chief Financial Officer since
February 1998. From July 1995 to January 1998, he was Vice President--Chief
Accounting Officer at Metromedia International Telecommunications, Inc. From
October 1993 to July 1995 he was Vice President--Chief Financial Officer at
Metromedia Restaurant Group. From February 1985 to October 1993, he was Vice
President--Chief Financial Officer at Metromedia Communications Corporation.
CHARLOTTE G. DENENBERG has served as Vice President--Chief Technology
Officer since December 1998. Prior to joining the Company, Ms. Denenberg was
employed by Southern New England Telecommunications Corporation ("SNET"), since
1987 in a variety of positions. Ms. Denenberg held
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the position of Chief Technology Officer for SNET from 1994 to November 1998.
Before SNET, Ms. Denenberg was employed by ITT Corporation as
Director--Technology Evaluation.
NICHOLAS M. TANZI has been Vice President--Sales since August 1997. From
March 1995 to July 1997, he served as Vice President, Enterprise Networks
Division at Fujitsu Business Communications Systems. From April 1993 to February
1995, Mr. Tanzi was Director of Sales, Eastern Region at Asante Technologies
Inc. Mr. Tanzi was employed in various capacities from November 1979 through
October 1993 at Digital Equipment Corporation.
SILVIA KESSEL has served as a Director of the Company since July 1997 and as
Executive Vice President since October 1997. Ms. Kessel has served as Chief
Financial Officer and Treasurer of Metromedia International Group, Inc. ("MMG")
since 1995 and Executive Vice President of MMG since 1996. In addition, Ms.
Kessel served as Executive Vice President of Orion Pictures Corporation
("Orion"), a motion picture production and distribution company, from January
1993 through July 1997, Senior Vice President of Metromedia Company since 1994
and President of Kluge & Company since January 1994. Prior to that time, Ms.
Kessel served as Senior Vice President and a Director of Orion from June 1991 to
November 1992 and Managing Director of Kluge & Company from April 1990 to
January 1994. Ms. Kessel is Executive Vice President and a member of the Board
of Directors of Big City Radio, Inc. ("YFM"), an American Stock Exchange listed
company that operates radio stations in New York, Los Angeles and Chicago, and
of MMG.
JOHN W. KLUGE has been a Director of the Company since July 1997. Mr. Kluge
has been the President and Chairman of Metromedia Company and its
predecessor-in-interest, Metromedia, Inc., for over five years. Mr. Kluge has
been the Chairman of the Board of MMG since 1995. In addition, Mr. Kluge was
Chairman of the Board of Directors and a Director of Orion from 1992 until July
1997. He also serves as a Director of Conair Corporation and Occidental
Petroleum Corporation.
DAVID ROCKEFELLER has served as a Director of the Company since October
1997. He currently serves as Chairman of The Chase Manhattan Bank's
International Advisory Committee, as Chairman of Rockefeller Center Properties,
Inc. (since 1995) and as a Director of Rockefeller & Co., Inc. (since 1994), a
privately owned investment management firm. From 1961 to 1981, Mr. Rockefeller
served as Chairman of The Chase Manhattan Corporation and The Chase Manhattan
Bank, N.A. From 1981 to 1995, he served as Chairman of Rockefeller Group, Inc.
STUART SUBOTNICK has been a Director of the Company since July 1997. Mr.
Subotnick has been the Vice Chairman of the Board of Directors of MMG since 1995
and President and Chief Executive Officer of MMG since December 1996. In
addition, Mr. Subotnick served as Vice Chairman of the Board of Directors of
Orion from 1992 until July 1997. Mr. Subotnick has served as Executive Vice
President of Metromedia Company and its predecessor-in-interest, Metromedia,
Inc., for over five years. Mr. Subotnick has served as Vice Chairman of MMG
since November 1995 and President and Chief Executive Officer of MMG since
November 1996. Mr. Subotnick is also a Director of Carnival Cruise Lines, Inc.
and Chairman of the Board of Directors of YFM.
ARNOLD L. WADLER has served as Executive Vice President, General Counsel and
Secretary of the Company since October 1997 and has served as a Director of the
Company since July 1997. Mr. Wadler has served as Executive Vice President,
General Counsel and Secretary of MMG since August 29, 1996 and, from November 1,
1995 until that date, as Senior Vice President, General Counsel and Secretary of
MMG and as the Executive Vice President, General Counsel, Secretary and Director
of YFM since December 1997. In addition, Mr. Wadler serves as a Director of MMG
and has served as a Director of Orion from 1991 until July 1997 and as Senior
Vice President, Secretary and General Counsel of Metromedia Company, and its
predecessor-in-interest, Metromedia, Inc., for over five years.
LEONARD WHITE has served as a Director of the Company since October 1997.
Mr. White has served as President and Chief Executive Officer of Rigel
Enterprises since July 1997. Mr. White served
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as President and Chief Executive Officer of Orion from 1992 until 1997 and as
President and Chief Executive Officer of Orion Home Entertainment Corporation
from 1987 to 1992. Mr. White also serves as a director of MMG, YFM and American
Film Technologies, Inc.
BOARD OF DIRECTORS
There are presently nine members on the Board of Directors of the Company.
Holders of the Class B Common Stock are entitled to elect 75% of the Board of
Directors and holders of the Class A Common Stock are entitled to vote as a
separate class to elect the remaining directors. Currently six of the nine
directors are nominees of the holders of Class B Common Stock and as a result
holders of the Class B Common Stock are entitled to fill three vacancies on the
Board of Directors. Members of each class of directors will hold office until
their successors are elected and qualified. At each annual meeting of the
stockholders of the Company, the directors are elected by a plurality vote of
all votes cast at such meeting entitled to vote for such directors and hold
office for a one-year term.
COMPENSATION OF DIRECTORS
During 1998, each director of the Company who was not an officer, employee
or affiliate of the Company (the "Non-Employee Directors") will be entitled to
receive a $20,000 annual retainer plus a separate attendance fee of $1,200 for
each meeting of the Board of Directors attended by a Non-Employee Director in
person or $500 for each meeting of the Board of Directors in which a
Non-Employee Director participated by conference telephone call. Members of
committees of the Board of Directors are paid $500 for each meeting attended. In
addition, the Company's 1998 Incentive Stock Plan entitles any Non-Employee
Director who first serves on the Board of Directors subsequent to the adoption
of the 1998 Incentive Stock Plan to receive awards under such plan of 20,000
shares of Class A Common Stock, each having an exercise price equal to the fair
market value of a share of Class A Common Stock on the date of grant. Awards to
Non-Employee Directors under the 1998 Incentive Stock Plan will be aggregated
with awards under the 1997 Incentive Stock Plan so that total awards under each
plan will not exceed 20,000 shares of Class A Common Stock.
Non-Employee Directors who meet the criteria for "outside director" under
Section 162(m) of the Internal Revenue Code ("Independent Directors") are
entitled to receive options to purchase 20,000 shares of the Company's Class A
Common Stock under the Company's 1997 Incentive Stock Plan. Under the 1997
Incentive Stock Plan, each Non-Employee Director who was a director of the
Company on October 28, 1997 was granted an option to purchase 20,000 shares of
the Company's common stock at an exercise price of $4.00, the price of the Class
A Common Stock on the date of the Initial Public Offering.
The 1997 Incentive Stock Plan further provides that each person who becomes
an Independent Director of the Company after October 28, 1997 will receive an
option to purchase 20,000 shares of the Company's Class A Common Stock on the
day such director is elected as a director, at an exercise price equal to the
closing price of the common stock on the trading day preceding such director's
election. Options granted to these Non-Employee Directors fully vest and become
exercisable as to all 20,000 shares on the date of grant.
In addition, on August 20, 1997, the Company granted to each of Mr. Kluge
and Mr. Subotnick options to purchase 1,014,000 shares of Class A Common Stock
at an exercise price of $.49 per share and to each of Mr. Wadler and Ms. Kessel
options to purchase 202,800 shares of Class A Common Stock at an exercise price
of $.49 per share.
EXECUTIVE COMPENSATION
The following table provides you with information on the compensation
awarded to, earned by or paid to our Chief Executive Officer and our four other
most highly compensated executive officers
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whose individual compensation exceeded $100,000 during the fiscal years ended
December 31, 1998, December 31, 1997 and December 31, 1996 for services rendered
in all capacities to us and our subsidiaries. The persons listed in the table
below are referred to as the "Named Executive Officers."
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
----------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
NUMBER OF
SHARES ALL
OTHER ANNUAL UNDERLYING OTHER
COMPENSATION STOCK COMPENS.
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) OPTIONS(2) ($)
- ----------------------------------- ---- --------- -------- ------------ ------------ --------
Stephen A. Garofalo................ 1998 328,385 100,000 23,301 -- --
Chairman and Chief 1997 295,000 50,000 14,157 1,521,000(6) --
Executive Officer 1996 225,000 -- -- -- --
Howard M. Finkelstein.............. 1998 321,462 100,000 24,074 -- --
President and Chief 1997 196,756 50,000 11,769 6,084,000(7) --
Operating Officer(3) 1996 -- -- -- -- --
Vincent A. Galluccio............... 1998 183,400 15,000 1,673 150,000(8) --
Senior Vice President 1997 181,522 -- -- 1,090,920(9) --
1996 127,087 -- -- -- --
Gerard Benedetto................... 1998 181,423 -- 3,355 550,000(10) --
Vice President--Chief 1997 -- -- -- -- --
Financial Officer(4) 1996 -- -- -- -- --
Nicholas M. Tanzi.................. 1998 158,000 65,000 2,819 150,000(8) --
Vice President--Sales(5) 1997 -- -- -- 360,840(11) --
1996 -- -- -- -- --
</TABLE>
- ------------------------
(1) Includes amounts paid as automobile allowance, insurance premiums and 401(k)
matching funds.
(2) This information gives effect to our Stock Splits.
(3) Officer was hired by Company during 1997, thus preceding year's compensation
is not applicable.
(4) Officer was hired by Company during 1998, thus preceeding years'
compensation is not applicable.
(5) Officer was hired by Company during 1997, thus preceding year's compensation
is not applicable. Compensation information for 1997 is omitted because
aggregate compensation during such fiscal year was less than $100,000.
(6) Includes presently exercisable options to purchase 1,521,000 shares of Class
A Common Stock at an exercise price of $.49 per share.
(7) Includes presently exercisable options to purchase 6,084,000 shares of Class
A Common Stock at an exercise price of $.49 per share.
(8) Includes options to purchase 150,000 shares of Class A Common Stock at an
exercise price of $10.50 per share that will become exercisable ratably over
a four year period commencing August 31, 1999.
(9) Includes presently exercisable options to purchase 640,920 shares of Class A
Common Stock at an exercise price of $.49 per share and the options to
purchase 150,000 shares of Class A Common Stock which the officer exercised
during 1998. Also, includes options to purchase 300,000 shares of Class A
Common Stock at an exercise price of $4.00 per share that will become
exercisable ratably over a four year period commencing October 28, 1998.
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(10) Includes options to purchase 400,000 and 150,000 shares of Class A Common
Stock at an exercise price of $3.88 and $10.50 per share that will become
exercisable ratably over a four year period commencing January 6, 1999 and
August 31, 1999, respectively.
(11) Includes presently exercisable options to purchase 60,840 shares of Class A
Common Stock at an exercise price of $1.91 per share and options to purchase
300,000 shares of Class A Common Stock at an exercise price of $4.00 per
share that will become exercisable ratably over a four year period
commencing October 28, 1998.
During 1998 and 1997, Mr. Wadler and Ms. Kessel, each of whom serves as an
executive officer of the Company, were employed and paid by Metromedia Company
pursuant to a management agreement with Metromedia Company dated as of January
2, 1998 (the "Management Agreement"). Please refer to the section in this
Prospectus entitled "Certain Relationships and Related Transactions--Recent
Transactions--Management Agreement." The Company did not pay any other amounts
to the Named Executive Officers during 1998 or 1997.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with each of the following Named
Executive Officers.
GAROFALO EMPLOYMENT AGREEMENT. Mr. Garofalo's employment agreement, dated as
of February 26, 1997, has a five year term. It provides Mr. Garofalo a base
salary of $295,000 for the first year, $335,000 for the second year, $375,000
for the third year, $415,000 for the fourth year and $455,000 for the fifth
year. Mr. Garofalo is also entitled to receive an annual incentive bonus to be
determined by the Compensation Committee of the Board of Directors. The
incentive bonus will not be less than $100,000 per year. Mr. Garofalo's
employment agreement also provides for other employee benefits such as a car
allowance, life insurance, health care and certain disability and death
benefits. In addition, Mr. Garofalo was granted options to purchase 1,521,000
shares of Class A Common Stock at an exercise price of $.49 per share. These
options are immediately exercisable and expire 10 years from their grant. We
registered the shares of Class A Common Stock underlying the options under the
Securities Act upon the consummation of the Initial Public Offering. Except in
the case of disability, we may terminate Mr. Garofalo's employment only for
cause upon which termination Mr. Garofalo will have no right to receive any
compensation or benefit from us. If the agreement is terminated without cause,
or if Mr. Garofalo terminates employment for good reason, we will be obligated
to pay Mr. Garofalo an amount equal to the greater of (i) his monthly base
salary as then in effect multiplied by the number of months remaining in the
term of his employment as of such termination date and (ii) $1,000,000. "Good
reason" includes (i) a reduction in the nature or scope of Mr. Garofalo's
titles, authorities, powers, duties or responsibilities; (ii) a change in the
method or formula for determining the bonus which results in a decrease in the
amount of bonus payable to Mr. Garofalo; (iii) the removal of Mr. Garofalo as a
member of the Board of Directors, unless such removal occurs after termination
of Mr. Garofalo's employment for cause; (iv) a sale of all or substantially all
of the ownership interests or assets of the Company or a merger or consolidation
of the Company with any other corporation; (v) a change in control of the
Company, defined as any person or entity becoming a beneficial owner as defined
in Rule 13d-3 of the Securities Exchange Act of 1934 directly or indirectly of
securities of the Company representing 50% or more of the combined voting power
of the Company's then outstanding securities; or (vi) a material breach by the
Company of its affirmative or negative covenants or undertakings in the
employment agreement and a failure to remedy such breach within 15 days.
Pursuant to the agreement, Mr. Garofalo has agreed not to compete with the
Company for a period of one year following termination of the agreement. During
such non-compete period, Mr. Garofalo will be entitled to receive an amount
equal to his base salary as in effect on the date of termination so long as the
agreement was not terminated prior to the expiration of the term by either
party.
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FINKELSTEIN EMPLOYMENT AGREEMENT. Mr. Finkelstein's employment agreement,
dated as of April 30, 1997, has a three year term. It provides Mr. Finkelstein
with a base salary of $295,000 for the first year, $335,000 for the second year
and $375,000 for the third year. Mr. Finkelstein is also entitled to receive an
annual incentive bonus to be determined by the Compensation Committee of the
Board of Directors. The incentive bonus will not be less than $100,000 for each
year. Mr. Finkelstein's employment agreement also provides for other employee
benefits such as a car allowance, life insurance, health care, and certain
disability and death benefits. In addition, Mr. Finkelstein was granted options
to purchase 6,084,000 shares of Class A Common Stock at an exercise price of
$.49 per share, which options are immediately exercisable and expire 10 years
from their grant. We registered such shares of Class A Common Stock under the
Securities Act on Form S-8 upon the consummation of the Initial Public Offering.
Except in the case of disability, we may terminate Mr. Finkelstein's employment
only for cause upon which termination Mr. Finkelstein will have no right to
receive any compensation or benefit from us. If the agreement is terminated
without cause or if Mr. Finkelstein terminates employment for good reason, we
will be obligated to pay to Mr. Finkelstein his base salary, bonus and benefits
that are accrued and unpaid as of the date of termination as well as an amount
equal to one and a half times his base salary as then in effect. "Good reason"
includes (i) a reduction in the nature or scope of Mr. Finkelstein's titles,
authorities, powers, duties or responsibilities; (ii) a change in the method or
formula for determining the bonus which results in a decrease in the amount of
bonus payable to Mr. Finkelstein; (iii) the removal of Mr. Finkelstein as a
member of the Board of Directors, unless such removal occurs after termination
of Mr. Finkelstein's employment for cause; (iv) a sale of all or substantially
all of the ownership interests or assets of the Company or a merger or
consolidation of the Company with any other corporation; (v) a change in control
of the Company, defined as any person or entity (other than Mr. Garofalo)
becoming a beneficial owner as defined in Rule 13d-3 of the Securities Exchange
Act of 1934 directly or indirectly of securities of the Company representing 50%
or more of the combined voting power of the Company's then outstanding
securities; or (vi) a material breach by the Company of its affirmative or
negative covenants or undertakings in the employment agreement and a failure to
remedy such breach within 15 days. Pursuant to the agreement, Mr. Finkelstein
has agreed not to compete with the Company for a period of one year following
termination of the agreement. During such non-compete period, Mr. Finkelstein
will be entitled to receive an amount equal to his base salary as in effect on
the date of termination so long as the agreement was not terminated prior to the
expiration of the term by either party.
GALLUCCIO EMPLOYMENT AGREEMENT. Mr. Galluccio's employment agreement, dated
as of August 31, 1998, has a one year term. It provides Mr. Galluccio with a
base salary of $183,400. Mr. Galluccio is also entitled to receive an annual
incentive bonus, which is dependent upon the Company's performance, to be
determined by the Compensation Committee of the Board of Directors. If approved
by the Compensation Committee, the incentive bonus has a target of 20% of Mr.
Galluccio's base salary. Mr. Galluccio's employment agreement also provides for
other employee benefits such as the right to participate in all group health and
insurance programs. In addition, Mr. Galluccio was granted options to purchase
150,000 shares of Class A Common Stock at an exercise price of $10.50 per share.
These shares have been registered under the Securities Act on Form S-8. Except
in the case of disability or a change of control, we may terminate Mr.
Galluccio's employment only for cause upon which termination Mr. Galluccio will
have no right to receive any compensation or benefit from us. If Mr. Galluccio's
employment is terminated for any reason other than for cause or in the event
that there is a change of control of the Company and Mr. Galluccio is requested
in connection with such change of control to perform his duties under this
agreement on a regular, full-time basis at a location further than 75 miles from
Mr. Galluccio's current principal office location, Mr. Galluccio, in his sole
and absolute discretion, may deem this agreement to be terminated by the Company
without cause and Mr. Galluccio will be entitled to receive his base salary for
the remaining term of his employment agreement, all previously earned and
accrued entitlements and benefits from us and our employee benefit plans and an
amount equal to 25% of Mr. Galluccio's base salary. Pursuant to his employment
agreement, Mr. Galluccio has agreed not to compete with the Company or any
affiliated company for a period of two years following the termination of the
agreement.
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BENEDETTO EMPLOYMENT AGREEMENT. Mr. Benedetto's employment agreement, dated
as of August 31, 1998, has a three and one-half year term. It provides Mr.
Benedetto with a minimum base salary of $200,000 for each year. Mr. Benedetto is
also entitled to receive an annual incentive bonus, which is dependent upon the
Company's performance, to be determined by the Compensation Committee of the
Board of Directors. If approved by the Compensation Committee, the incentive
bonus has a target of 20% of Mr. Benedetto's base salary. Mr. Benedetto's
employment agreement also provides for other employee benefits such as the right
to participate in all group health and insurance programs. In addition, Mr.
Benedetto was granted options to purchase 150,000 shares of Class A Common Stock
at an exercise price of $10.50 per share. These shares have been registered
under the Securities Act on Form S-8. Except in the case of disability or a
change of control, we may terminate Mr. Benedetto's employment only for cause
upon which termination Mr. Benedetto will have no right to receive any
compensation or benefit from us. If Mr. Benedetto's employment is terminated for
any reason other than for cause or in the event that there is a change of
control of the Company and Mr. Benedetto is requested in connection with such
change of control to perform his duties under this agreement on a regular,
full-time basis at a location further than 75 miles from Mr. Benedetto's current
principal office location, Mr. Benedetto, in his sole and absolute discretion,
may deem this agreement to be terminated by the Company without cause and Mr.
Benedetto will be entitled to receive his base salary for the remaining term of
his employment agreement, all previously earned and accrued entitlements and
benefits from us and our employee benefit plans and an amount equal to 25% of
Mr. Benedetto's base salary. Pursuant to his employment agreement, Mr. Benedetto
has agreed not to compete with the Company or any affiliated company for a
period of two years following termination of the agreement.
TANZI EMPLOYMENT AGREEMENT. Mr. Tanzi's employment agreement, dated as of
August 31, 1998, has a two year term. It provides Mr. Tanzi with a minimum base
salary of $175,000 for each year. Mr. Tanzi is also entitled to receive an
annual incentive bonus, which is dependent upon the Company's performance, to be
determined by the Compensation Committee of the Board of Directors. If approved
by the Compensation Committee, the incentive bonus has a target of 40% of Mr.
Tanzi's base salary. Mr. Tanzi's employment agreement also provides for other
employee benefits such as the right to participate in all group health and
insurance programs. In addition, Mr. Tanzi was granted options to purchase
150,000 shares of Class A Common Stock at an exercise price of $10.50 per share.
These shares have been registered under the Securities Act on Form S-8. Except
in the case of disability or change of control, we may terminate Mr. Tanzi's
employment only for cause upon which termination Mr. Tanzi will have no right to
receive any compensation or benefit from us. If Mr. Tanzi's employment is
terminated for any reason other than for cause or in the event that there is a
change of control of the Company and Mr. Tanzi is requested in connection with
such change of control to perform his duties under this agreement on a regular,
full-time basis at a location further than 75 miles from Mr. Tanzi's current
principal office location, Mr. Tanzi, in his sole and absolute discretion, may
deem this agreement to be terminated by the Company without cause and Mr. Tanzi
will be entitled to receive his base salary for the remaining term of his
employment agreement, all previously earned and accrued entitlements and
benefits from us and our employee benefit plans and an amount equal to 25% of
Mr. Tanzi's base salary. Pursuant to his employment agreement, Mr. Tanzi has
agreed not to compete with the Company or any affiliated company for a period of
two years following termination of the agreement.
INDEMNIFICATION AGREEMENTS
We have entered into indemnification agreements (the "Indemnification
Agreements") with certain officers and directors. The Indemnification Agreements
provide for indemnification of such directors and officers to the fullest extent
authorized or permitted by law. The Indemnification Agreements also provide that
(i) we will advance all expenses incurred by the director or officer in
defending certain litigation, (ii) we will appoint in certain circumstances an
independent legal counsel to determine whether the director or officer is
entitled to indemnification and (iii) we will continue to maintain directors'
and officers' liability insurance (which currently consists of $25.0 million of
primary coverage).
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
HISTORICAL TRANSACTIONS
As of December 31, 1996, we had outstanding approximately $4.9 million of
indebtedness due to US ONE Communications of New York, Inc. ("US ONE"), a lessee
of our dark fiber, which was personally guaranteed by Stephen A. Garofalo. On
April 30, 1997, upon consummation of the Metromedia Investment, $1,370,000 of
the indebtedness was repaid in cash from proceeds of the Metromedia Investment
while the remainder was converted into a prepaid lease payment to us. Therefore,
there is no such indebtedness currently outstanding.
In February, 1996, we entered into a settlement agreement (the "Katz
Settlement Agreement") with Howard Katz, the Company's former Chief Financial
Officer, and Realprop Capital Corp. ("Realprop"), an affiliate of Mr. Katz, in
connection with the termination of Mr. Katz's employment with us. Pursuant to
the Katz Settlement Agreement, we agreed to pay Mr. Katz approximately $940,000
over a period of five years, including $90,000 per year pursuant to a consulting
agreement (the "Consulting Agreement"). Under the Consulting Agreement, Realprop
was to provide consulting services relating to Katz's knowledge and
understanding of transactions and the conduct of business in which we engaged
and to such other areas of consultation as Katz and we mutually agreed upon. On
November 12, 1996, Howard Katz, Lauren Katz, Stephen Katz and Realprop
(collectively, the "Katz Group") entered into an agreement (the "Katz Purchase
Agreement") with Peter Sahagen, at the time Acting Vice Chairman--Finance of the
Company. The Katz Purchase Agreement granted Mr. Sahagen the right to purchase
an aggregate of 1,058,524 shares of Class A Common Stock and an option to
purchase warrants for 831,532 shares of Class A Common Stock (collectively, the
"Katz Securities") for an aggregate purchase price of $640,000. In conjunction
with the Katz Purchase Agreement, in a letter agreement dated December 10, 1996,
Howard Katz and Realprop Capital Corp. agreed to release us from all liabilities
and obligations arising out of the Katz Settlement Agreement, and to reduce the
term of the $90,000 per year Consulting Agreement from five years to three
years. On February 11, 1997, Mr. Sahagen entered into a letter agreement with us
acknowledging that he was acting as nominee for us with respect to the Katz
Purchase Agreement and assigned to us all of his rights, title and interest in
and to the Katz Purchase Agreement. We agreed to reimburse Mr. Sahagen for
$25,000 in payments made to Mr. Katz for extending Mr. Sahagen's right to
purchase the Katz Securities. On February 11, 1997, we entered into an agreement
with the Katz Group, pursuant to which we purchased the Katz Securities for
$640,000 and confirmed that the Consulting Agreement may be terminated by us
after three years of its term had concluded. The purchase price was funded with
a portion of the proceeds of the Metromedia Loan (as described). In March, 1998,
we entered into an Amendment, Settlement and Release Agreement with the Katz
Group and Evelyn Katz in connection with the foregoing.
On April 15, 1996, we entered into an employment agreement with Gerald Vento
pursuant to which Mr. Vento would serve as Chief Executive Officer of the
Company. On the same day, we entered into a stock purchase agreement and a
consulting agreement with VCNY. Pursuant to the stock purchase agreement, we
issued 6,084,000 shares of Class A Common Stock to VCNY as consideration for
prior services provided by VCNY. On October 9, 1996, we entered into a
settlement agreement with Mr. Vento and VCNY. Pursuant to such settlement
agreement, (i) we agreed to terminate Mr. Vento's employment agreement, (ii)
VCNY agreed to sell to Stephen A. Garofalo 5,475,600 shares of Class A Common
Stock (the "Vento Shares") and (iii) we agreed to pay $112,500 to VCNY on behalf
of Mr. Vento. On January 3, 1997, Mr. Garofalo assigned his right to purchase
the Vento Shares to Mr. Sahagen. On January 13, 1997, Mr. Sahagen and other
parties purchased the Vento Shares for $425,000. Please refer to the section of
this Prospectus entitled "Business--Legal Proceedings."
On October 28, 1996, the Knobel 1995 Children's Investment Trust (the
"Knobel Trust") granted to Stephen A. Garofalo an option to purchase 1,599,556
shares of Class A Common Stock for an
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aggregate purchase price of $500,000. By letter dated December 3, 1996, the
option was amended to reduce the number of option shares to 1,295,356. Mr.
Garofalo thereafter assigned this option to us. On February 11, 1997, we
exercised this option by payment of the sum of $500,000 to the Knobel Trust. We
paid such amount with a portion of the proceeds of the Metromedia Loan.
On February 11, 1997, we entered into an agreement (the "Sahagen Agreement")
with Mr. Sahagen. Pursuant to the Sahagen Agreement, we agreed to pay Mr.
Sahagen a fee of $250,000 upon an equity investment in the Company of at least
$10 million, in full and complete payment for all services rendered by Mr.
Sahagen in his capacity as Acting Vice Chairman--Finance of the Company and in
facilitating the Metromedia Investment and for any fees or compensation due to
Mr. Sahagen pursuant to any prior agreements with us. Mr. Sahagen agreed to
release us from any claims against us, subject to payments required by the
Sahagen Agreement. We agreed to designate Mr. Sahagen or a suitable designee
selected by Mr. Sahagen as a Director of the Company for a term of six months.
We also granted Mr. Sahagen certain "piggyback" registration rights. In
connection with the Metromedia Investment, we paid the $250,000 fee to Mr.
Sahagen.
On December 13, 1996, we issued and sold to Penny Lane Partners, L.P.
("Penny Lane"), for aggregate cash consideration of $2,025,000, (i) 600,000
shares of 10% cumulative convertible preferred stock (the "Series A Preferred
Stock") bearing dividends at a rate of $.34 per share per annum, (ii) warrants
to purchase 456,300 shares of Class A Common Stock at an exercise price of $1.24
per share (the "Penny Lane Warrants") and (iii) a contingent stock subscription
warrant to purchase a number of shares of Class A Common Stock (such number to
be determined based on certain future events) at an exercise price of $0.01 per
share (the "Contingent Warrants"). In connection with the Metromedia Investment,
Penny Lane allowed the Series A Preferred Stock and the Contingent Warrants to
be redeemed at an aggregate redemption price of $2,115,000 (which includes
accrued but unpaid dividends on the Series A Preferred Stock) and in connection
therewith we agreed to increase the number of shares underlying the Penny Lane
Warrants from 456,300 to 912,600. In January 1998, Penny Lane made a cashless
exercise of all its warrants and the number of its shares issuable upon exercise
was reduced by the number of shares at the closing on the day of exercise having
a value equal to the aggregate exercise price. Accordingly, we issued Penny Lane
1,382,048 shares for all its warrants.
RECENT TRANSACTIONS
METROMEDIA INVESTMENT. On February 10, 1997, Metromedia Company agreed to
loan us $2,000,000. Please refer to the section in this Prospectus entitled
"Security Ownership." Pursuant to an agreement dated March 6, 1997, Metromedia
Company agreed to loan to us up to an additional $6,000,000, subject to certain
conditions (together with the loan on February 10, the "Metromedia Loan"). On
April 30, 1997, we repaid the Metromedia Loan with a portion of the proceeds
from the Metromedia Investment. The Metromedia Loan was funded in two
installments: (i) $1,140,000 on February 10, 1997 and (ii) $860,000 on February
14, 1997. It provided for a revolving loan of up to an additional $6,000,000.
The Metromedia Loan was scheduled to mature on August 31, 1997 and bore interest
at the prime rate announced by The Chase Manhattan Bank. We used the proceeds
from the first installment of the Metromedia Loan to fund an escrow account
which repurchased on our behalf 2,353,880 shares of Class A Common Stock and
warrants to purchase 831,532 shares of Class A Common Stock (the "Repurchased
Securities"). Pursuant to an escrow arrangement, we pledged the Repurchased
Securities to Metromedia Company as security for the Metromedia Loan. We used
the proceeds from the other installments of the Metromedia Loan for working
capital. On April 30, 1997, we entered into an agreement (the "Metromedia
Agreement"), pursuant to which we sold to Metromedia Company, Mr. Subotnick, Mr.
Wadler and Ms. Kessel shares of Series B Convertible Preferred Stock, par value
$.01 per share (the "Series B Preferred Stock") (which constituted 100% of such
series), for $32,500,000. The shares of the Series B Preferred Stock were
exchanged for 16,884,636 shares of Class B Common Stock pursuant to the Series B
Reclassification (as defined). We used the
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proceeds from this transaction to redeem the Series A Preferred Stock and
Contingent Warrants ($2,115,000), to repay the Metromedia Loan and accrued
interest thereon ($4,058,126), to repay indebtedness to US ONE ($1,370,000), to
repay indebtedness to Sterling Capital LLC ($555,000), and used the balance for
working capital. Upon repayment of the Metromedia Loan, the Repurchased Shares
were released from escrow and delivered to us.
MODIFICATION AGREEMENT. On October 28, 1997, we entered into a Modification
Agreement with Metromedia Company, Mr. Subotnick, Mr. Wadler, Ms. Kessel and Mr.
Garofalo pursuant to which the Metromedia Agreement was modified and Metromedia
Company, Mr. Subotnick, Mr. Wadler, Ms. Kessel and Mr. Garofalo agreed to vote
all of their shares of Series B Preferred Stock, common stock and Class A Common
Stock to approve of the adoption of our Amended and Restated Certificate of
Incorporation, the reclassification of the common stock into Class A Common
Stock and of the Series B Preferred Stock into Class B Common Stock and the
reverse stock split of shares of the Class A Common Stock and shares of the
Class B Common Stock, as more fully described below.
TRADEMARK LICENSE AGREEMENT. We are a party to a license agreement with
Metromedia Company (the "Metromedia License Agreement"), pursuant to which
Metromedia Company has granted us a nonexclusive, nontransferable, nonassignable
right and license, without the right to grant sublicenses, to use the trade
name, trademark and corporate name "Metromedia" in the United States and
worldwide, royalty-free for a term of 10 years. The Metromedia License Agreement
can be terminated by Metromedia Company upon one month's prior written notice in
the event that (i) Metromedia Company or its affiliates own less than 20% of the
common stock; (ii) a "change in control of the Company" occurs; or (iii) any of
the stock or all or substantially all of the assets of any of our subsidiaries
are sold or transferred, in which case, the Metromedia License Agreement will
terminate with respect to such subsidiary. A "change in control of the Company"
is defined as (i) a transaction in which a person or "group" (within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934) not in existence at
the time of the execution of the Metromedia License Agreement becomes the
beneficial owner of stock entitling such person or group to exercise 50% or more
of the combined voting power of all classes of stock of the Company; (ii) a
change in the composition of Board of Directors whereby a majority of the
members thereof are not directors serving on the Board of Directors at the time
of the Metromedia License Agreement or any person succeeding such director who
was recommended or elected by such directors; (iii) a reorganization, merger or
consolidation where following consummation thereof, Metromedia Company would
hold less than 20% of the combined voting power of all classes of the Company's
stock; (iv) a sale or other disposition of all or substantially all of the
assets of the Company; or (v) any transaction the result of which would be that
the common stock would not be required to be registered under the Securities
Exchange Act of 1934 and the holders of common stock would not receive common
stock of the survivor to the transaction which is required to be registered
under the Securities Exchange Act of 1934.
In addition, Metromedia Company has reserved the right to terminate the
Metromedia License Agreement in its entirety immediately upon written notice to
us if, in Metromedia Company's sole judgment, our continued use of "Metromedia"
as a trade name would jeopardize or be detrimental to the good will and
reputation of Metromedia Company.
Pursuant to the Metromedia License Agreement, we have agreed to indemnify
Metromedia Company and hold it harmless against any and all losses, claims,
suits, actions, proceedings, investigations, judgments, deficiencies, damages,
settlements, liabilities and reasonable legal expenses (and other expenses
related thereto) arising in connection with the Metromedia License Agreement.
SHARE RECLASSIFICATION AND EXCHANGES. On September 23, 1997, in connection
with the Initial Public Offering, we approved of a reverse stock split pursuant
to which each share of the old common stock, par value $.01 per share, was
converted into .507 shares of the old common stock. On October 28, 1997, we
approved two share exchanges pursuant to which 9,564,940 shares of the old
common stock,
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par value $.01 per share, were exchanged for the same number of shares of Class
A Common Stock and a total of 8,403.25 shares of the Series B Convertible
Preferred Stock, par value $.01 per share, of the Company held by Metromedia
Company, Stuart Subotnick, Arnold Wadler and Silvia Kessel were exchanged for
4,260,486 shares of our Class B Common Stock (without giving effect to the Stock
Split) (the "Series B Reclassification"). Messrs. Kluge, Subotnick and Wadler
and Ms. Kessel are directors of the Company and Messrs. Kluge and Subotnick are
general partners of, and Mr. Wadler and Ms. Kessel are executive officers of,
Metromedia Company. Immediately thereafter, Mr. Wadler and Ms. Kessel converted
an aggregate of 39,327 shares of Class B Common Stock into an equivalent number
of shares of Class A Common Stock. These exchanges were exempt from registration
under the Securities Act of 1933, by virtue of Section 3(a)(9) of such Act.
MANAGEMENT AGREEMENT. We are a party to the Management Agreement pursuant to
which Metromedia Company provides us with consultation and advisory services
relating to legal matters, insurance, personnel and other corporate policies,
cash management, internal audit and finance, taxes, benefit plans and other
services as we may reasonably request. The Management Agreement terminates on
December 31, 1998, and is automatically renewed for successive one year terms
unless either party terminates upon 60 days prior written notice. The management
fee under the Management Agreement is $500,000 per year, payable monthly at a
rate of $41,667 per month. We are also obligated to reimburse Metromedia Company
all its out-of-pocket costs and expenses incurred and advances paid by
Metromedia Company in connection with the Management Agreement. Pursuant to the
Management Agreement, we have agreed to indemnify Metromedia Company and hold it
harmless from and against any and all damages, liabilities, losses, claims,
actions, suits, proceedings, fees, costs or expenses (including reasonable
attorneys' fees and other costs and expenses incident to any suit, proceeding or
investigation of any kind) imposed on, incurred by or asserted against
Metromedia Company in connection with the Management Agreement. In 1997,
Metromedia Company received no money for its out-of-pocket costs and expenses or
for interest on advances extended by it to us pursuant to the Management
Agreement. For the year ended December 31, 1998, we incurred $500,000 to
Metromedia Company under this agreement.
STOCK SPLITS. On July 23, 1998, the Executive Committee of the Board of
Directors approved a two-for-one stock split of the shares of Class A Common
Stock and Class B Common Stock in the form of a 100% stock dividend. The stock
dividend was issued to stockholders of record as of the close of business on
August 7, 1998. As of September 30, 1998, adjusted for the effect of such stock
split, we had 38,730,226 shares of Class A Common Stock outstanding and
8,442,318 shares of Class B Common Stock outstanding. On December 3, 1998, the
Executive Committee of the Board of Directors approved a two-for-one stock split
of the shares of Class A Common Stock and Class B Common Stock in the form of a
100% stock dividend (the "Stock Split"). The stock dividend was issued to
stockholders of record as of the close of business on December 8, 1998. As of
January 8, 1999, adjusted for the effect of the Stock Split, we had 77,605,110
shares of Class A Common Stock outstanding and 16,884,636 shares of Class B
Common Stock outstanding.
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SECURITY OWNERSHIP
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides you with certain information, as of January 1,
1999, regarding the beneficial ownership of our voting stock after giving effect
to the Stock Splits by (i) each of our directors and director nominees, (ii)
each person whom we believe beneficially owns more than 5% of our outstanding
voting stock, (iii) each Named Executive Officer and (iv) all our executive
officers and directors as a group. In accordance with the rules promulgated by
the Securities and Exchange Commission, such ownership includes shares currently
owned as well as shares which the named person has the right to acquire
beneficial ownership of within 60 days, including through the exercise of
options, warrants or other rights, or through the conversion of a security.
Accordingly, more than one person may be deemed to be a beneficial owner of the
same securities. Except as otherwise indicated, each stockholder listed below
has sole voting and investment power of the shares beneficially owned by such
person.
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK(1)
--------------------- ----------------------
<S> <C> <C> <C> <C> <C>
PERCENT PERCENT
NUMBER OF NUMBER OF PERCENT OF
OF SHARES CLASS OF SHARES CLASS TOTAL VOTING POWER
----------- ----- ----------- ------ ------------------
Stephen A. Garofalo........... 22,747,756(2) 25.7% -- -- 8.9%
Metromedia Company............ -- * 15,731,024 93.2% 61.3%(14)
Putnam Investments, Inc....... 11,309,872(3) 12.8% -- -- 4.4%
Howard M. Finkelstein......... 6,084,000(4) 6.9% -- -- 2.4%
Vincent A. Galluccio.......... 715,920(5) * -- -- *
Gerard Benedetto.............. 102,000(6) * -- -- *
Nicholas M. Tanzi............. 138,440(7) * -- -- *
Silvia Kessel................. 255,236(8) * -- -- *
John W. Kluge................. 1,014,000(9) 1.1% 15,731,024(10) 93.2% 61.7%
David Rockefeller............. 1,414,552(11) 1.6% -- -- *
Stuart Subotnick.............. 1,014,000(9) 1.1% 16,884,636(10) 100.0% 66.2%
Arnold L. Wadler.............. 307,672(8) * -- -- *
Leonard White................. 23,000(12) * -- -- *
All Directors and Executive
Officers as a Group......... 33,816,576(13) 38.2% 16,884,636 100.0% 78.6%
</TABLE>
- ------------------------
* less than 1.0%
(1) The shares of Class B Common Stock are convertible into shares of Class A
Common Stock at the rate of one share of Class A Common Stock for each share
of Class B Common Stock and the holders of shares of Class B Common Stock
are entitled to 10 votes per share.
(2) Includes presently exercisable options to purchase 1,521,000 shares of Class
A Common Stock at an exercise price of $.49 per share. Mr. Garofalo's
address is One North Lexington Avenue, White Plains, New York 10601.
(3) Based solely upon the Schedule 13-G, dated September 18, 1998 filed by
Putnam Investments, Inc. The Putnam Investments, Inc. address is One Post
Office Square, Boston, Massachusetts, 02109.
(4) Represents presently exercisable options to purchase 6,084,000 shares of
Class A Common Stock at an exercise price of $.49 per share. Mr.
Finkelstein's address is One North Lexington Avenue, White Plains, New York
10601.
(5) Represents presently exercisable options to purchase 640,920 and 75,000
shares of Class A Common Stock at an exercise price of $.49 and $4.00 per
share, respectively.
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(6) Includes presently exercisable options to purchase 100,000 shares of Class A
Common Stock at an exercise price of $3.88 per share.
(7) Includes presently exercisable options to purchase 60,840 and 75,000 shares
of Class A Common Stock at an exercise price of $1.91 and $4.00 per share,
respectively. Also, includes 2,600 shares of Class A Common Stock owned by
members of Mr. Tanzi's family to which Mr. Tanzi has been granted a proxy to
vote. Mr. Tanzi's address is One North Lexington Avenue, White Plains, New
York 10601.
(8) Includes 202,800 presently exercisable options to acquire shares of Class A
Common Stock at an exercise price of $.49 per share held by each of Ms.
Kessel and Mr. Wadler. Does not include shares owned by Metromedia Company.
Ms. Kessel and Mr. Wadler are employed by Metromedia Company and disclaim
beneficial ownership of the shares owned by Metromedia Company.
(9) Consists of 1,014,000 presently exercisable options to acquire shares of
Class A Common Stock at an exercise price of $.49 per share held by each of
Mr. Kluge and Mr. Subotnick. Mr. Kluge's address is 215 East 67th Street,
New York, NY 10021 and Mr. Subotnick's address is 215 East 67th Street, New
York, NY 10021.
(10) Includes 15,731,024 shares owned by Metromedia Company. Messrs. Kluge and
Subotnick, Directors of the Company, are general partners of Metromedia
Company.
(11) Represents 1,394,552 shares owned by DR & Descendants Partnership, of which
Mr. Rockefeller is a partner and for which he exercises voting and
investment power and presently exercisable options to purchase 20,000 shares
of Class A Common Stock at an exercise price of $4.00 per share. Mr.
Rockefeller disclaims actual beneficial ownership of shares owned by DR &
Descendants Partnership except as to shares attributable to his
proportionate interest in the partnership.
(12) Includes 20,000 presently exercisable options to acquire shares of Class A
Common Stock at an exercise price of $4.00 per share.
(13) Includes presently exercisable options to acquire 10,679,520, 60,840,
100,000 and 190,000 shares of Class A Common Stock at an exercise price of
$.49, $1.91, $3.88 and $4.00 per share, respectively.
(14) Metromedia Company's address is One Meadowlands Plaza, East Rutherford, NJ
07073.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
Under the Registration Rights Agreement, we are required to file not later
than February 23, 1999 (90 days following the date of original issuance of the
Initial Notes (the "Closing Date")) the Registration Statement of which this
Prospectus is a part for a registered exchange offer with respect to an issue of
new notes substantially identical in all material respects to the Initial Notes
except that the new notes will be registered under the Securities Act, will not
bear legends restricting their transfer and will not be entitled to registration
rights under the Registration Rights Agreement. The summary herein of certain
provisions of the Registration Rights Agreement does not purport to be complete
and we refer you to the provisions of the Registration Rights Agreement, which
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part and a copy of which is available as set forth under the
heading "Available Information."
Under the Registration Rights Agreement, we are required to:
- use our reasonable best efforts to cause the Registration Statement to be
declared effective no later than May 24, 1999 (180 days after the Closing
Date),
- keep the Exchange Offer effective for not less than 20 business days (or
longer if required by applicable law) after the date that notice of the
Exchange Offer is mailed to holders of the Initial Notes, and
- use our reasonable best efforts to consummate the Exchange Offer no later
than June 23, 1999 (210 days after the Closing Date).
The Exchange Offer being made here, if commenced and consummated within the
time periods described in this paragraph, will satisfy those requirements under
the Registration Rights Agreement.
This Prospectus, together with the Letter of Transmittal, is being sent to
all record holders of Initial Notes as of , 1999.
Based on interpretations by the staff of the Securities and Exchange
Commission, as set forth in no-action letters issued to third parties, we
believe that the Exchange Notes issued pursuant to the Exchange Offer may be
offered for resale, resold or otherwise transferred by each holder of Exchange
Notes (other than a broker-dealer who acquires the Initial Notes directly from
the Company for resale pursuant to Rule 144A under the Securities Act or any
other available exemption under the Securities Act, and other than any holder
that is an "affiliate" (as defined in Rule 405 under the Securities Act) of the
Company) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such holder:
- is acquiring the Exchange Notes in the ordinary course of its business,
- is not participating in, and does not intend to participate in, a
distribution of such Exchange Notes within the meaning of the Securities
Act and has no arrangement or understanding with any person to participate
in a distribution of the Exchange Notes within the meaning of the
Securities Act, and
- is not an affiliate (as defined in Rule 405 under the Securities Act) of
the Company.
By tendering the Initial Notes in exchange for Exchange Notes, each holder,
other than a broker-dealer, will be required to make representations to that
effect. If a holder of Initial Notes is participating in or intends to
participate in, a distribution of the Exchange Notes, or has any arrangement or
understanding with any person to participate in a distribution of the Exchange
Notes to be acquired pursuant to the Exchange Offer, such holder may be deemed
to have received restricted securities and may not rely on the applicable
interpretations of the staff of the Securities and Exchange
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Commission. Any such holder will have to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
secondary resale transaction.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Initial Notes may be deemed to be an "underwriter" within the
meaning of the Securities Act and must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such Exchange Notes. 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.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with offers to resell, resales and other
transfers of Exchange Notes received in exchange for Initial Notes which were
acquired by such broker-dealer as a result of market making or other trading
activities. We have agreed that we will make this Prospectus available to any
broker-dealer for a period of time not to exceed 180 days after the consummation
of the Exchange Offer for use in connection with any such offer to resell,
resale or other transfer. Please refer to the section in this Prospectus
entitled "Plan of Distribution."
SHELF REGISTRATION STATEMENT
In the event that:
(i) because of any change in law or applicable interpretations thereof by
the staff of the Securities and Exchange Commission, we are not permitted to
effect the Exchange Offer, or
(ii) for any other reason, the Exchange Offer is not consummated within 180
days from the Closing Date, or
(iii) any holder of Initial Notes notifies us within 20 days following the
consummation of the Exchange Offer that (x) such holder was prohibited by law of
policy of the Securities and Exchange Commission from participating in the
Exchange Offer, or (y) such holder may not resell the Exchange Notes acquired by
it in the Exchange Offer to the public without delivering a prospectus and this
Prospectus is not appropriate or available for such resale, or (z) such holder
is a broker-dealer and holds Notes acquired directly from us or any of our
Affiliates (within the meaning of the Securities Act), then in the case of
clauses (i) through (iii) of this sentence, we will be obligated, at our sole
expense, to:
- use our reasonable best efforts, as promptly as practicable and in no
event more than 30 days following such request, to file with the
Securities and Exchange Commission a shelf registration statement (the
"Shelf Registration Statement") covering resales of the Initial Notes,
- use our reasonable best efforts to cause the Shelf Registration Statement
to be declared effective under the Securities Act within 120 days after
the date we are required to file a Shelf Registration Statement, and
- use our reasonable best efforts to keep the Shelf Registration Statement
continuously effective, supplemented and amended as required by the
Securities Act, in order to permit the prospectus which is a part of such
Shelf Registration Statement to be usable by holders for a period of two
years after the Shelf Registration Statement is declared effective or such
shorter period of time that will terminate when all of the applicable
Initial Notes have been sold thereunder.
We will, in the event that a Shelf Registration Statement is filed, provide
to each holder of the Initial Notes being registered copies of the prospectus
that 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 required to permit unrestricted resales of the Initial Notes
being registered. A holder that sells Initial Notes pursuant to the Shelf
Registration Statement will be required to be named as a selling security holder
in the related prospectus and to deliver a prospectus
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to purchasers, will be subject to certain of the civil liability provisions
under the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement that are applicable to such a
holder (including certain indemnification rights and obligations).
LIQUIDATED DAMAGES
In the event that:
(i) we do not file the Registration Statement or the Shelf Registration
Statement, as the case may be, with the Securities and Exchange Commission on or
before the dates specified above for such filings,
(ii) the Registration Statement or the Shelf Registration Statement, as the
case may be, is not declared effective on or before the dates specified above
for such effectiveness,
(iii) the Exchange Offer is not consummated on or prior to June 23, 1999
(210 days after the Closing Date), or
(iv) the Shelf Registration Statement is filed and declared effective but
thereafter ceases to be effective or usable in connection with its intended
purpose (each such event referred to in clauses (i) through (iv), a
"Registration Default"),
then we will be obligated to pay to each holder of Transfer Restricted
Securities (as defined in the Registration Rights Agreement) liquidated damages.
Liquidated damages will accrue and be payable semi-annually on the Initial Notes
and the Exchange Notes (in addition to the stated interest on the Initial Notes
and the Exchange Notes) in an amount equal to 0.50% per year during the first
90-day period, which will increase by 0.25% per year for each subsequent 90-day
period, but in no event will such rate exceed 1.50% per year in the aggregate,
regardless of the number of Registration Defaults. Liquidated damages will
accrue from the date a Registration Default occurs until the date on which:
- the Registration Statement is filed,
- the Registration Statement or Shelf Registration Statement is declared
effective and the Exchange Offer is consummated,
- the Shelf Registration Statement is declared effective, or
- the Shelf Registration Statement again becomes effective or made usable,
as the case may be.
Following the cure of all Registration Defaults, the accrual of liquidated
damages will cease.
Upon consummation of the Exchange Offer, subject to certain exceptions,
holders of Initial Notes who do not exchange their Initial Notes for Exchange
Notes in the Exchange Offer will no longer be entitled to registration rights
and will not be able to offer or sell their Initial Notes, unless such Initial
Notes are subsequently registered under the Securities Act (which, subject to
certain limited exceptions, we will have no obligation to do), or pursuant to an
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. Please refer to the section in this Prospectus
entitled "Risk Factors--The Failure to Participate in The Exchange Offer Will
Have Adverse Consequences."
TERMS OF THE EXCHANGE OFFER
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION
The Exchange Offer will expire at 5:00 p.m., New York City time, on
, 1999, unless we extend it in our reasonable discretion (such date
as it may be extended is referred to in this Prospectus as the "Expiration
Date"). The Expiration Date will be at least 20 business days after the
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commencement of the Exchange Offer in accordance with Rule 14e-1(a) under the
Securities Exchange Act of 1934 and the Registration Rights Agreement.
In order to extend the Expiration Date, we are obligated to notify the
Exchange Agent of any extension by oral (promptly confirmed in writing) or
written notice and to notify the holders of the Initial Notes by mailing an
announcement or by means of a press release or other public announcement
communicated, unless otherwise required by applicable law or regulation, prior
to 9:00 A.M., New York City time, on the next business day after the previously
scheduled Expiration Date.
We expressly reserve the right:
- to delay acceptance of any Initial Notes, to extend the Exchange Offer or
to terminate the Exchange Offer and not permit acceptance of Initial Notes
not previously accepted if any of the conditions set forth below under
"--Conditions" have occurred and have not been waived by us (if permitted
to be waived), by giving oral or written notice of such delay, extension
or termination to the Exchange Agent, or
- to amend the terms of the Exchange Offer in any manner.
If we amend the Exchange Offer in a manner determined by us to constitute a
material change, we will promptly disclose such amendment in a manner reasonably
calculated to inform the holders of the Initial Notes of such amendment
including providing public announcement, or giving oral or written notice to the
holders of the Initial Notes. A material change in the terms of the Exchange
Offer could include, among other things, a change in the timing of the Exchange
Offer, a change in the Exchange Agent, and other similar changes in the terms of
the Exchange Offer. If any material change is made to terms of the Exchange
Offer, we will disclose such change by means of a post-effective amendment to
the Registration Statement of which this Prospectus is a part and will
distribute an amended or supplemented Prospectus to each registered holder of
Initial Notes. In addition, we will also extend the Exchange Offer for an
additional five to ten business days as required by the Securities Exchange Act
of 1934, depending on the significance of the amendment, if the Exchange Offer
would otherwise expire during such period. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by oral (promptly confirmed in writing) or written notice thereof to the
Exchange Agent.
PROCEDURES FOR TENDERING
To tender your Initial Notes in the Exchange Offer, you must complete, sign
and date the Letter of Transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if required by the Letter of Transmittal, and mail or
otherwise deliver the Letter of Transmittal or the facsimile, or an Agent's
Message (as defined below), together with the certificates representing the
Initial Notes being tendered and any other required documents, to the Exchange
Agent on or prior to 5:00 p.m., New York City time, on the Expiration Date.
Alternatively, you may either:
- send a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Initial Notes, if such procedure is available, into
the Exchange Agent's account at The Depository Trust Company ("DTC")
pursuant to the procedure for book-entry transfer described below, on or
prior to 5:00 p.m. on the Expiration Date, or
- comply with the guaranteed delivery procedures described below.
The term "Agent's Message" means a message, transmitted by DTC to, and
received by, the Exchange Agent and forming a part of a Book-Entry Confirmation,
which states that DTC has received an express acknowledgment from the
participant in DTC tendering Initial Notes which are the subject
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of such Book-Entry Confirmation that such participant has received and agrees to
be bound by the terms of the Letter of Transmittal, and that we may enforce such
agreement against such participant.
THE METHOD OF DELIVERY OF THE INITIAL NOTES, THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT YOUR ELECTION AND RISK. INSTEAD OF DELIVERY
BY MAIL, WE RECOMMEND THAT YOU USE AN OVERNIGHT OR HAND-DELIVERY SERVICE. IF
SUCH DELIVERY IS BY MAIL, WE RECOMMEND THAT YOU USE REGISTERED MAIL, PROPERLY
INSURED, WITH RETURN RECEIPT REQUESTED. IN ALL CASES, YOU SHOULD ALLOW
SUFFICIENT TIME TO ASSURE TIMELY DELIVERY. YOU SHOULD NOT SEND ANY LETTERS OF
TRANSMITTAL OR INITIAL NOTES TO US. You must deliver all documents to the
Exchange Agent at its address set forth below. You may also request your
respective brokers, dealers, commercial banks, trust companies or nominees to
effect such tender on your behalf.
Your tender of Initial Notes will constitute an agreement between you and us
in accordance with the terms and subject to the conditions set forth in this
Prospectus and in the Letter of Transmittal.
Only a holder of Initial Notes may tender such Initial Notes in the Exchange
Offer. The term "holder" with respect to the Exchange Offer means any person in
whose name Initial Notes are registered on our books or any other person who has
obtained a properly completed bond power from the registered holder.
If you are the beneficial owner of Initial Notes that are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee and
you wish to tender your Initial Notes, you should contact such registered holder
promptly and instruct such registered holder to tender on your behalf. If you
wish to tender on your own behalf, you must, prior to completing and executing
the Letter of Transmittal and delivering your Initial Notes, either make
appropriate arrangements to register ownership of the Initial Notes in your name
or obtain a properly completed bond power from the registered holder. The
transfer of registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or an "eligible guarantor" institution within the meaning of Rule 17Ad-15
under the Securities Exchange Act of 1934 (each, an "Eligible Institution"),
unless the Initial Notes are tendered:
- by a registered holder (or by a participant in DTC whose name appears on a
security position listing as the owner) who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal if the Exchange Notes are being
issued directly to such registered holder (or deposited into the
participant's account at DTC), or
- for the account of an Eligible Institution.
If the Letter of Transmittal is signed by the recordholder(s) of the Initial
Notes tendered, the signature must correspond with the name(s) written on the
face of the Initial Notes without alteration, enlargement or any change
whatsoever. If the Letter of Transmittal is signed by a participant in DTC, the
signature must correspond with the name as it appears on the security position
listing as the holder of the Initial Notes.
If the Letter of Transmittal is signed by a person other than the registered
holder of any Initial Notes listed, such Initial Notes must be endorsed or
accompanied by bond powers and a proxy that authorize such person to tender the
Initial Notes on behalf of the registered holder in satisfactory form to us as
determined in our sole discretion, in each case as the name of the registered
holder or holders appears on the Initial Notes.
If the Letter of Transmittal or any Initial Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or
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representative capacity, such persons should so indicate when signing. Unless
waived by us, evidence satisfactory to us of their authority to so act must also
be submitted with the Letter of Transmittal.
A tender will be deemed to have been received as of the date when the
tendering holder's duly signed Letter of Transmittal accompanied by the Initial
Notes tendered (or a timely confirmation received of a book-entry transfer of
Initial Notes into the Exchange Agent's account at DTC with an Agent's Message)
or a Notice of Guaranteed Delivery from an Eligible Institution is received by
the Exchange Agent. Issuances of Exchange Notes in exchange for Initial Notes
tendered pursuant to a Notice of Guaranteed Delivery by an Eligible Institution
will be made only against delivery of the Letter of Transmittal (and any other
required documents) and the tendered Initial Notes (or a timely confirmation
received of a book-entry transfer of Initial Notes into the Exchange Agent's
account at DTC with an Agent's Message) with the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Initial Notes will be
determined by us in our sole discretion, which determination will be final and
binding. We reserve the absolute right to reject any and all Initial Notes not
properly tendered or any Initial Notes which, if accepted, would, in our opinion
or our counsel's opinion, be unlawful. We also reserve the absolute right to
waive any conditions of the Exchange Offer or irregularities or defects in
tender as to particular Initial Notes. Our interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Initial Notes must be
cured within such time as we shall determine. We, the Exchange Agent or any
other person will be under no duty to give notification of defects or
irregularities with respect to tenders of Initial Notes. None of us or the
Exchange Agent will incur any liability for failure to give such notification.
Tenders of Initial Notes will not be deemed to have been made until such
irregularities have been cured or waived. Any Initial Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned without cost by
the Exchange Agent to the tendering holders of such Initial Notes, unless
otherwise provided in the Letter of Transmittal, as promptly as practicable
following the Expiration Date.
In addition, we reserve the right in our sole discretion, subject to the
provisions of the Indenture, to:
- purchase or make offers for any Initial Notes that remain outstanding
subsequent to the Expiration Date, or, as set forth under "--Expiration
Date; Extensions; Amendments; Termination", to terminate the Exchange
Offer in accordance with the terms of the Registration Rights Agreement,
and
- to the extent permitted by applicable law, purchase Initial Notes in the
open market, in privately negotiated transactions or otherwise. The terms
of any such purchases or offers could differ from the terms of the
Exchange Offer.
ACCEPTANCE OF INITIAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
we will accept all Initial Notes properly tendered, promptly after the
Expiration Date, and will issue the Exchange Notes promptly after the Expiration
Date and acceptance of the Initial Notes. Please refer to the section of this
Prospectus entitled "--Conditions" below. For purposes of the Exchange Offer,
Initial Notes will be deemed to have been accepted as validly tendered for
exchange when, as and if we had given oral or written notice to the Exchange
Agent.
In all cases, issuance of Exchange Notes for Initial Notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of certificates for
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such Initial Notes or a timely Book-Entry Confirmation of such Initial Notes
into the Exchange Agent's account at the Book-Entry Transfer Facility, a
properly completed and duly executed Letter of Transmittal or an Agent's Message
and all other required documents, in each case, in form satisfactory to us and
the Exchange Agent. If any tendered Initial Notes are not accepted for any
reason set forth in the terms and conditions of the Exchange Offer or if Initial
Notes are submitted for a greater principal amount than the holder desires to
exchange, such unaccepted or non-exchanged Initial Notes will be returned
without expense to the tendering holder thereof (or, in the case of Initial
Notes tendered by book-entry transfer procedures described below, such
non-exchanged Initial Notes will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after withdrawal,
rejection of tender, the Expiration Date or earlier termination of the Exchange
Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Initial Notes at DTC for purposes of the Exchange Offer within two
business days after the date of this Prospectus. Any financial institution that
is a participant in DTC's systems may make book-entry delivery of Initial Notes
by causing DTC to transfer such Initial Notes into the Exchange Agent's account
at DTC in accordance with DTC's procedures for transfer.
However, although delivery of Initial Notes may be effected through
book-entry transfer into the Exchange Agent's account at DTC, an Agent's Message
or the Letter of Transmittal or facsimile thereof with any required signature
guarantees and any other required documents must, in any case, be transmitted to
and received by the Exchange Agent at the address set forth below under
"--Exchange Agent" on or prior to the Expiration Date or the guaranteed delivery
procedures described below must be complied with. DELIVERY OF DOCUMENTS TO DTC
DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. All references in the
Prospectus to deposit of Initial Notes will be deemed to include DTC's
book-entry delivery method.
GUARANTEED DELIVERY PROCEDURE
If you are a registered holder of Initial Notes and desire to tender such
Initial Notes, and the Initial Notes are not immediately available, or time will
not permit your Initial Notes or other required documents to reach the Exchange
Agent before the Expiration Date, or the procedures for book-entry transfer
cannot be completed on a timely basis and an Agent's Message delivered, you may
still tender in the Exchange Offer if:
- you tender through an Eligible Institution,
- prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) and Notice of Guaranteed Delivery,
substantially in the form provided by us (by facsimile transmission, mail
or hand delivery), setting forth your name and address as holder of the
Initial Notes and the amount of Initial Notes tendered, stating that the
tender is being made thereby and guaranteeing that within five business
days after the Expiration Date the certificates for all tendered Initial
Notes, in proper form for transfer, or a Book-Entry Confirmation with an
Agent's Message, as the case may be, and any other documents required by
the Letter of Transmittal will be deposited by the Eligible Institution
with the Exchange Agent, and
- the certificates for all tendered Initial Notes, in proper form for
transfer, or a Book-Entry Confirmation as the case may be, and all other
documents required by the Letter of Transmittal are received by the
Exchange Agent within five business days after the Expiration Date.
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WITHDRAWAL OF TENDERS
Except as otherwise provided in this Prospectus, you may withdraw tenders of
Initial Notes at any time prior to 5:00 p.m., New York City time, on the
Expiration Date.
For a withdrawal to be effective, you must send a written or facsimile
transmission notice of withdrawal to the Exchange Agent prior to 5:00 p.m., New
York City time, on the Expiration Date at the address set forth below under
"--Exchange Agent" and prior to acceptance for exchange thereof by us. Any such
notice of withdrawal must:
- specify the name of the person having tendered the Initial Notes to be
withdrawn (the "Depositor"),
- identify the Initial Notes to be withdrawn (including, if applicable, the
registration number or numbers and total principal amount of such Initial
Notes),
- be signed by the Depositor in the same manner as the original signature on
the Letter of Transmittal by which such Initial Notes were tendered
(including any required signature guarantees) or be accompanied by
documents of transfer sufficient to permit the Trustee with respect to the
Initial Notes to register the transfer of such Initial Notes into the name
of the Depositor withdrawing the tender,
- specify the name in which any such Initial Notes are to be registered, if
different from that of the Depositor, and
- if applicable because the Initial Notes have been tendered pursuant to the
book-entry procedures, specify the name and number of the participant's
account at DTC to be credited, if different than that of the Depositor.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by us and our determination will be
final and binding on all parties. Any Initial Notes so withdrawn will be deemed
not to have been validly tendered for exchange for purposes of the Exchange
Offer. Any Initial Notes which have been tendered for exchange which are not
exchanged for any reason will be returned to the holder thereof without cost to
such holder (or, in the case of Initial Notes tendered by book-entry transfer
into the Exchange Agent's account at DTC pursuant to the book-entry transfer
procedures described above, such Initial Notes will be credited to an account
maintained with DTC for the Initial Notes) as promptly as practicable after
withdrawal, rejection of tender, Expiration Date or earlier termination of the
Exchange Offer. Properly withdrawn Initial Notes may be retendered by following
one of the procedures described under "--Procedures for Tendering" and
"--Book-Entry Transfer" above at any time on or prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, we will not be
required to accept Initial Notes for exchange, or issue Exchange Notes in
exchange for any Initial Notes, and we may terminate or amend the Exchange Offer
as provided in this Prospectus before the acceptance of such Initial Notes, if:
- an action or proceeding has been instituted or threatened in any court or
before any governmental agency or body that in our judgment would
reasonably be expected to prohibit, prevent or otherwise impair our
ability to proceed with the Exchange Offer;
- a change in the current interpretation of the staff of the Securities and
Exchange Commission has occurred which current interpretation permits the
Exchange Notes issued pursuant to the Exchange Offer in exchange for the
Initial Notes to be offered for resale, resold or otherwise transferred by
holders thereof (other than in certain circumstances);
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- a law, statute, rule or regulation has been adopted or enacted which, in
our judgment, would reasonably be expected to impair our ability to
proceed with the Exchange Offer;
- a stop order has been issued by the Securities and Exchange Commission or
any state securities authority suspending the effectiveness of the
Registration Statement of which this Prospectus is a part or the
qualification of the Indenture under the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"), or proceedings shall have been
initiated or, to our knowledge, threatened for that purpose;
- a governmental approval has not been obtained, which approval we deem in
our sole discretion, necessary for the consummation of the Exchange Offer;
or
- a change, or a development involving a prospective change, in our business
or financial affairs has occurred which, in our sole judgment, might
materially impair our ability to proceed with the Exchange Offer.
These conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any such condition or may be
waived by us, in whole or in part, at any time and from time to time, if we
determine in our reasonable discretion that any of the foregoing events or
conditions has occurred or exists or has not been satisfied, subject to
applicable law. Our failure at any time to exercise any of the foregoing rights
will not be deemed a waiver of any such right and each such right will be deemed
an ongoing right which we may assert at any time and from time to time.
If we determine that we may terminate the Exchange Offer, as provided above,
we may:
- refuse to accept any Initial Notes and return any Initial Notes that have
been tendered to the holders thereof,
- extend the Exchange Offer and retain all Initial Notes tendered prior to
the Expiration Date, subject to the rights of such holders of tendered
Initial Notes to withdraw their tendered Initial Notes, or
- waive such termination event with respect to the Exchange Offer and accept
all properly tendered Initial Notes that have not been withdrawn or
otherwise amend the terms of the Exchange Offer in any respect as provided
under the section in this Prospectus entitled "--Expiration Date;
Extensions; Amendments; Termination."
The Exchange Offer is not conditioned upon any minimum principal amount of
Initial Notes being tendered for exchange.
We have no obligation to, and will not knowingly, permit acceptance of
tenders of Initial Notes from our Affiliates (within the meaning of Rule 405
under the Securities Act) or from any other holder or holders who are not
eligible to participate in the Exchange Offer under applicable law or
interpretations thereof by the Securities and Exchange Commission, or if the
Exchange Notes to be received by such holder or holders of Initial Notes in the
Exchange Offer, upon receipt, will not be tradable by such holder without
restriction under the Securities Act and the Securities Exchange Act of 1934 and
without material restrictions under the "blue sky" or securities laws of
substantially all of the states of the United States.
ACCOUNTING TREATMENT
We will record the Exchange Notes at the same carrying value as the Initial
Notes, as reflected in our accounting records on the date of the exchange.
Accordingly, we will not recognize any gain or loss for accounting purposes. We
will amortize the costs of the Exchange Offer and the unamortized expenses
related to the issuance of the Exchange Notes over the term of the Exchange
Notes.
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EXCHANGE AGENT
We have appointed IBJ Whitehall Bank & Trust Company as Exchange Agent for
the Exchange Offer. All questions and requests for assistance and requests for
additional copies of this Prospectus or the Letter of Transmittal should be
directed to the Exchange Agent as follows:
By Mail:
IBJ Whitehall Bank & Trust Company
P.O. Box 84
Bowling Green Station
New York, NY 10274-0084
ATTN: Reorganization Operations Department
By Hand/Overnight Delivery:
IBJ Whitehall Bank & Trust Company
One State Street
New York, NY 10004
ATTN: Securities Processing Window, Subcellar One, (SC-1)
Facsimile Transmission: (212) 858-2611
Confirm by Telephone: (212) 858-2103
Via Telex No.: 177754
FEES AND EXPENSES
We will bear the expenses of soliciting tenders pursuant to the Exchange
Offer. The principal solicitation for tenders pursuant to the Exchange Offer is
being made by mail; however, our offices and regular employees may make
additional solicitations by telegraph, telephone, telecopy or in person.
We will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. However, we will pay the Exchange
Agent reasonable and customary fees for its services and will reimburse the
Exchange Agent for its reasonable out-of-pocket expenses in connection with the
Exchange Offer. We may also pay brokerage houses and other custodians, nominees
and fiduciaries the reasonable out-of-pocket expenses incurred by them in
forwarding copies of the Prospectus, Letters of Transmittal and related
documents to the beneficial owners of the Initial Notes, and in handling or
forwarding tenders for exchange.
We will pay the expenses incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting,
legal, printing and related fees and expenses.
We will pay all transfer taxes, if any, applicable to the exchange of
Initial Notes pursuant to the Exchange Offer. However, 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:
- certificates representing Exchange Notes or Initial Notes for principal
amounts not tendered or accepted for exchange are to be delivered to, or
are to be registered or issued in the name of, any person other than the
registered holder of the Initial Notes tendered, or
- tendered Initial Notes are registered in the name of any person other than
the person signing the Letter of Transmittal, or
- a transfer tax is imposed for any reason other than the exchange of
Initial Notes pursuant to the Exchange Offer.
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If satisfactory evidence of payment of such taxes or exemption therefrom is
not submitted with the Letter of Transmittal, the amount of such transfer taxes
will be billed directly to such tendering holder.
THE FAILURE TO PARTICIPATE IN THE EXCHANGE OFFER WILL HAVE ADVERSE CONSEQUENCES
If you do not exchange your Initial Notes for Exchange Notes pursuant to the
Exchange Offer, you will not be able to resell, offer to resell or otherwise
transfer the Initial Notes unless they are registered under the Securities Act
or unless you resell them, offer to resell or otherwise transfer them under an
exemption from the registration requirements of, or in a transaction not subject
to, the Securities Act. In addition, you will no longer be able to obligate us
to register the Initial Notes under the Securities Act except in the limited
circumstances provided under the Registration Rights Agreement. The restrictions
on transfer of your Initial Notes arise because we issued the Initial Notes
pursuant to exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
addition, if you want to exchange your Initial Notes in the Exchange Offer for
the purpose of participating in a distribution of the Exchange Notes, you may be
deemed to have received restricted securities, and, if so, will be required to
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. To the extent the
Initial Notes are tendered and accepted in the Exchange Offer, the trading
market, if any, for the Initial Notes would be adversely affected. Please refer
to the section in this Prospectus entitled "Risk Factors."
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DESCRIPTION OF THE EXCHANGE NOTES
GENERAL
The form and terms of the Exchange Notes are the same as the form and terms
of the Initial Notes, except that the Exchange Notes have been registered under
the Securities Act and therefore will not bear legends restricting the transfer
thereof. We issued the Initial Notes and will issue the Exchange Notes pursuant
to the Indenture, dated as of November 25, 1998, between us and IBJ Whitehall
Bank & Trust Company, as trustee (the "Trustee"). The terms of the Exchange
Notes will include those stated in the Indenture and the Security Agreement,
dated as of November 25, 1998, among us, the Trustee and IBJ Whitehall Bank &
Trust Company as security intermediary (the "Security Agreement") and those made
part of the Indenture by reference to the Trust Indenture Act. The Exchange
Notes will be subject to all such terms, and we refer you to the Indenture, the
Security Agreement and the Trust Indenture Act for a statement of such terms.
Except as otherwise indicated, the following description relates both to the
Initial Notes and the Exchange Notes and is a summary of the material provisions
of the Indenture and the Security Agreement. It does not restate those
agreements in their entirety. We urge you to read the Indenture and the Security
Agreement because they, and not this description, define your rights as holder
of the Exchange Notes. We have filed copies of the Indenture and the Security
Agreement as exhibits to the Registration Statement which includes this
Prospectus. The definitions of certain terms used in the following summary are
set forth below under "--Certain Definitions." For purposes of this summary, the
term "Company" refers only to Metromedia Fiber Network, Inc. and not to any of
its Subsidiaries. Also, in this description "Initial Notes" and "Exchange Notes"
are collectively referred to as the "Notes."
As of the Issue Date, all of our Subsidiaries will be Restricted
Subsidiaries. Under certain circumstances, we will be able to designate existing
or future Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries
will not be subject to many of the restrictive covenants contained in the
Indenture. Our investment in ION and our investment in the joint venture
constructing the German Network will not be considered Subsidiaries for purposes
of the Indenture.
TERMS OF NOTES
The Notes:
- are general obligations of the Company,
- rank without preference in right of payment with all existing and future
unsecured senior Indebtedness of the Company,
- rank senior in right of payment to all subordinated Indebtedness of the
Company that may be issued in the future, if any, and
- are not secured by any assets, and, therefore, will be effectively
subordinated to any existing and future secured Indebtedness of the
Company and its Subsidiaries, including the Credit Agreement, to the
extent of the value of the assets securing such Indebtedness.
We conduct substantially all of our operations through our Subsidiaries and,
therefore, we are dependent on the cash flow of our Subsidiaries to meet our
obligations, including our obligations with respect to the Notes. The Notes will
be effectively subordinated to all Indebtedness and other liabilities and
commitments (including trade payables and lease obligations) of our
Subsidiaries, including any Guarantees of such Subsidiaries with respect to the
Credit Agreement. Any right of the Company to receive assets of any of its
Subsidiaries upon the liquidation or reorganization of such Subsidiary (and the
consequent right of the Holders of the Notes to participate in those assets)
will be effectively subordinated to the claims of that Subsidiary's creditors,
except to the extent that the Company is itself recognized as a creditor of such
Subsidiary. In such case the claims of the Company would still be
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subordinate to any security in the assets of such Subsidiary and any
indebtedness of such Subsidiary that is senior to that held by the Company.
Please refer to the sections in this Prospectus entitled "Risk Factors--Risk
Factors Relating to the Notes--Company Structure."
PRINCIPAL, MATURITY AND INTEREST
The Company will issue Notes with a maximum aggregate principal amount of
$650.0 million. The Company will issue Notes in denominations of $1,000.00 and
integral multiples of $1,000.00. For each Initial Note accepted for exchange,
the holder of such Initial Note will receive an Exchange Note having a principal
amount equal to that of the surrendered Initial Note. The Notes will mature on
November 15, 2008.
Interest on the Exchange Notes will accrue at the rate of 10% per year and
will be payable semi-annually in arrears on May 15 and November 15, commencing
on May 15, 1999. The Company will make each interest payment to the Holders of
record of these Notes on the immediately preceding May 1 and November 1.
Interest on the Exchange Notes will accrue from the most recent date to
which interest has been paid on the Initial Notes or, if no interest has been
paid on the Initial Notes, from November 25, 1998. Accordingly, if the relevant
record date for interest payment occurs after the consummation of the Exchange
Offer, registered holders of Exchange Notes on such record date will receive
interest accruing from the most recent date to which interest has been paid on
the Initial Notes or, if no interest has been paid, from November 25, 1998.
Holders of Initial Notes whose Initial Notes are accepted for exchange will not
receive any payment in respect of interest on such Initial Notes otherwise
payable on any interest payment date the record date for which occurs on or
after the consummation of the Exchange Offer. If, however, the relevant record
date for interest payment occurs prior to the consummation of the Exchange
Offer, registered holders of Initial Notes on such record date will receive
interest accruing from the most recent date to which interest has been paid or,
if no interest has been paid, from November 25, 1998. Interest will cease to
accrue on Initial Notes accepted for exchange from and after the date of
consummation of the Exchange Offer, except as described in the immediately
preceding sentence. Interest is computed on the basis of a 360-day year
comprised of twelve 30-day months.
If a Holder has given wire transfer instructions to the Company, the Company
will make all payments of principal, premium, if any, and interest on the Notes
to such Holder by wire transfer of immediately available funds in accordance
with those instructions. All other payments of principal, premium, if any, and
interest on the Notes are payable at the office or agency of the Company
maintained for such purpose within the City and State of New York unless the
Company has elected to pay interest on the Notes by check mailed to the Holders
of the Notes at their respective addresses set forth in the register of Holders
of Notes by the Holders thereof. Until otherwise designated by the Company, the
Company's office or agency in New York will be the office of the Trustee
maintained for such purpose.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The Trustee initially will be the Paying Agent and Registrar under the
Indenture, and the Company may act as Paying Agent or Registrar under the
Indenture.
THE SECURITY AGREEMENT
The Company's obligation to pay interest on the Notes on May 15, 1999,
November 15, 1999, and May 15, 2000 is secured by funds held by IBJ Whitehall
Bank & Trust Company, as security agent (the "Security Agent") under an
agreement between the Company and the Security Agent (the "Security Agreement").
Concurrently with the closing of the offering of the Initial Notes, the Company
deposited
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with the Security Agent in the security account (the "Security Account")
approximately $91.5 million in U.S. Government Securities, that, together with
the proceeds from the investment thereof, will be sufficient to pay when due the
first three interest payments on the Notes. Following the third interest payment
on the Notes, any amounts remaining in the Security Account will be released to
the Company and will thereafter remain subject to the applicable provisions of
the Indenture.
OPTIONAL REDEMPTION
Except as set forth below, the Notes will not be redeemable at the Company's
option prior to November 15, 2003.
After November 15, 2003, the Company may redeem the Notes, 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 (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date), if redeemed during the twelve-month period beginning on November 15 of
the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ----------------------------------------------------------------------- -----------
<S> <C>
2003................................................................... 105.000%
2004................................................................... 103.333%
2005................................................................... 101.667%
2006 and thereafter.................................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to November 15, 2001, the
Company may, on any one or more occasions, redeem up to 35% of the aggregate
principal amount of Notes originally issued pursuant to the Indenture at a
redemption price of 110% of the principal amount thereof, plus accrued and
unpaid interest (and Liquidated Damages, if any) thereon to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date), if:
- the Company uses the Net Cash Proceeds received from any Public Equity
Offering made by the Company resulting in gross proceeds to the Company of
at least $100 million, and
- at least 65% of the aggregate principal amount of the Notes originally
issued pursuant to the Indenture remain outstanding immediately after the
occurrence of any such redemption.
The Company may make any such redemption upon not less than 30 nor more than
60 days' notice (but in no event more than 90 days after the closing of the
related Public Equity Offering).
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, the Trustee
will select Notes for redemption as follows:
- in compliance with the requirements of the principal national securities
exchange, if any, on which the Notes are then listed, or
- if the Notes are not so then listed, on a pro rata basis, by lot or by
such method as the Company deems fair and appropriate.
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 prior
to the redemption date to each Holder of Notes to be redeemed at its registered
address. Notices of redemption may not be conditional.
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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 of such
Note to be redeemed. A new Note in principal amount equal to the unredeemed
portion of such Note will be issued in the name of the Holder of such original
Note upon cancellation of the original Note. Notes called for redemption will
become due on the date fixed for redemption. On and after the redemption date,
interest will cease to accrue on Notes or portions thereof called for redemption
unless the Company defaults in the payment of such interest.
MANDATORY REDEMPTION
The Company is not be required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a Change of Control occurs, each Holder of Notes will have the right to
require the Company to purchase all or any part (equal to $1,000 or an integral
multiple thereof) of that Holder's Notes pursuant to the offer described below
(the "Change of Control Offer") at a purchase price in cash equal to 101% of the
aggregate principal amount thereof (the "Change of Control Payment"), plus
accrued and unpaid interest (and Liquidated Damages, if any) thereon to the date
of purchase (subject to the right of Holders of record on the relevant record
date to receive interest due on the relevant interest payment date). However,
the Company shall not be obligated to repurchase Notes pursuant to a Change of
Control Offer if it has exercised its rights to redeem all of the Notes pursuant
to the Indenture. Within 30 days following any Change of Control, the Company
will mail a notice to each Holder describing the transaction or transactions
that constitute the Change of Control and offering to purchase Notes on the date
specified in such notice, which date shall be no earlier than 30 and no later
than 60 days from the date such notice is mailed (the "Change of Control Payment
Date"), in accordance with the procedures required by the Indenture and
described in such notice.
The Company will comply with the requirements of Rule 14e-1 under the
Securities Exchange Act of 1934 and any other securities laws and regulations to
the extent such laws and regulations are applicable in connection with the
purchase of Notes as a result of a Change of Control. To the extent that the
provisions of any securities laws or regulations conflict with any of the
provisions of this covenant, the Company will comply with the applicable
securities laws and regulations and will be deemed not to have breached its
obligations under this covenant by virtue thereof.
On the Change of Control Payment Date, the Company will, to the extent
lawful:
- accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer,
- deposit with the Paying Agent an amount equal to the Change of Control
Payment plus accrued and unpaid interest thereon and Liquidated Damages,
if any, in respect of all Notes or portions thereof so tendered, and
- deliver or cause to be delivered to the Trustee Notes so accepted together
with an Officer's Certificate stating the aggregate principal amount of
Notes or portions thereof being purchased by the Company.
The Paying Agent will promptly mail or deliver to each Holder of Notes so
tendered the Change of Control Payment plus accrued and unpaid interest thereon
and Liquidated Damages, if any, for such Notes, and the Trustee will promptly
authenticate and mail or deliver (or cause to be transferred by book entry) to
each Holder a new Note in principal amount equal to any unpurchased portion of
Notes
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surrendered, if any; PROVIDED that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. The Company will publicly
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Notes to require that the Company
purchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction.
The Company's ability to purchase Notes upon a Change of Control may be
limited by the Company's then existing financial resources. We cannot assure you
that sufficient funds will be available when necessary to make any such required
purchases. The Company shall not be required to make a Change of Control Offer
if a third party makes the Change of Control Offer in the manner, at the times
and otherwise in compliance with the requirements of the Indenture and purchases
all Notes validly tendered and not withdrawn.
ASSET SALES
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, consummate any Asset Sale, unless:
(i) the Company (or such Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair
market value of the assets or Equity Interests issued or sold or
otherwise disposed of. For purposes of this covenant, fair market value
will be as determined in good faith by the Board of Directors (including
as to the value of all non cash consideration) and set forth in an
Officer's Certificate delivered to the Trustee,
(ii) at least 75% of the consideration therefor is in the form of cash
and/or Cash Equivalents or Telecommunications Assets, and
(iii) the Company (or such Restricted Subsidiary, as the case may be) applies
the Net Proceeds received from such Asset Sale within 360 days
following the receipt of such Net Cash Proceeds, to the extent the
Company elects:
(a) to the permanent redemption or repurchase of outstanding
Indebtedness (other than Subordinated Indebtedness) that is secured
Indebtedness (including that in the case of a revolver or similar
arrangement that makes credit available, such commitment is so
permanently reduced by such amount), or Indebtedness of the Company
or such Restricted Subsidiary that ranks equally with the Notes but
has a maturity date that is prior to the maturity date of the Notes,
and/or
(b) to reinvest such Net Cash Proceeds (or any portion thereof) in
Telecommunications Assets.
Notwithstanding anything herein to the contrary, with respect to the
reinvestment of Net Cash Proceeds, only proceeds from an Asset Sale of assets,
or Equity Interests, of a Foreign Subsidiary may be used to retire Indebtedness
of a Foreign Subsidiary or reinvest in assets or Equity Interests of a Foreign
Subsidiary.
The balance of the Net Cash Proceeds that are not applied or invested as
described in the immediately preceding clauses (a) and (b), shall constitute
"Excess Proceeds."
When the aggregate amount of Excess Proceeds equals or exceeds $15.0 million
(taking into account income earned on such Excess Proceeds), the Company will be
required to make a pro rata offer to all Holders of Notes and PARI PASSU
Indebtedness with comparable provisions requiring such
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Indebtedness to be purchased with the proceeds of such Asset Sale (an "Asset
Sale Offer") to purchase the maximum principal amount or accreted value in the
case of Indebtedness issued with an original issue discount of Notes and PARI
PASSU Indebtedness that may be purchased out of the Excess Proceeds, at a
purchase price in cash in an amount equal to 100% of the principal amount
thereof or the accreted value thereof, as applicable, plus accrued and unpaid
interest thereon to the date of purchase (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date), in accordance with the procedures set forth in the
Indenture and the agreements governing such PARI PASSU Indebtedness. To the
extent that any Excess Proceeds remain after consummation of an Asset Sale
Offer, the Company may use such Excess Proceeds for any purpose not otherwise
prohibited by the Indenture. If the aggregate principal amount of Notes and PARI
PASSU Indebtedness tendered into such Asset Sale Offer surrendered by Holders
thereof exceeds the amount of Excess Proceeds, the Trustee shall select the
Notes and PARI PASSU Indebtedness to be purchased on a pro rata basis in
proportion to the respective principal amounts (or accreted values in the case
of Indebtedness issued with an original issue discount) of the Notes and such
other Indebtedness. Upon completion of such Asset Sale Offer, the amount of
Excess Proceeds shall be reset at zero for purposes of the first sentence of
this paragraph.
For purposes of this provision, the following amounts will be deemed to be
cash and/or Cash Equivalents:
(i) any liabilities (as shown on the Company's (or such Restricted
Subsidiary's, as the case may be), most recent balance sheet), other
than Subordinated Indebtedness, of the Company or any Restricted
Subsidiary, that are assumed by the transferee of any such assets
pursuant to an agreement that immediately releases the Company and all
of its Restricted Subsidiaries from all liability in respect thereof,
(ii) Indebtedness of any Restricted Subsidiary that is no longer a
Restricted Subsidiary as a result of such Asset Sale, if the Company
and all of its Restricted Subsidiaries immediately are released from
all Guarantees of payment of such Indebtedness and such Indebtedness is
no longer the liability of the Company or any of its Restricted
Subsidiaries, and
(iii) any securities, notes or other obligations received by the Company (or
such Restricted Subsidiary, as the case may be) from such transferee
that are contemporaneously (subject to ordinary settlement periods)
converted by the Company (or such Restricted Subsidiary, as the case
may be) into cash and/or Cash Equivalents (to the extent of the cash
and/or Cash Equivalents received).
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Company will not, and will not permit any of its Restricted 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 Restricted Subsidiaries' Equity Interests
or to the direct or indirect holders of the Company's or any of its Restricted
Subsidiaries' Equity Interests in their capacity as stockholders (other than
dividends or distributions payable in Equity Interests (other than Disqualified
Stock) of the Company or to the Company or a Restricted Subsidiary of the
Company),
(ii) purchase, redeem or otherwise acquire or retire for value any Equity
Interests of the Company or any of its Restricted Subsidiaries or any direct or
indirect parent of the Company (other than any such Equity Interests owned by
the Company or any Consolidated Subsidiary of the Company),
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(iii) make any payment on or with respect to, or purchase, redeem, defease
or otherwise acquire or retire for value any Subordinated Indebtedness, except a
payment of interest or principal at Stated Maturity, 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:
(a) at the time of and after giving effect to such Restricted Payment, 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 period, have been permitted to
incur at least $1.00 of additional Indebtedness pursuant to either
clause (i) or (ii) of the first paragraph of the covenant described
below under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock", and
(c) such Restricted Payment, together with the aggregate amount of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
on and after the Issue Date (excluding Restricted Payments permitted by,
and made pursuant to, clauses (ii), (iii) and (viii) of the next
succeeding paragraph), is less than the sum, without duplication and
except as credited in the next succeeding paragraph, of:
(i) 50% of the Consolidated Net Income of the Company for the period
(taken as one accounting period) beginning on the last day of the
fiscal quarter immediately preceding the Issue Date and ending on
the last day of the fiscal quarter immediately preceding the date of
such Restricted Payment (or, if such Consolidated Net Income for
such period is a deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate Net Cash Proceeds received by the Company on
and after the Issue Date as a Capital Contribution or from the
issue or sale of Equity Interests of the Company (other than
Disqualified Stock) or from the issue or sale of Disqualified Stock
or debt securities of the Company that have been converted or
exchanged into such Equity Interests (other than Equity Interests
(or Disqualified Stock or converted debt securities) sold to a
Subsidiary of the Company), plus the amount of Net Cash Proceeds
received by the Company upon such conversion or exchange, plus
(iii) the aggregate amount equal to the net reduction in Investments in
Unrestricted Subsidiaries on and after the Issue Date resulting
from (x) dividends, distributions, interest payments, return of
capital, repayments of Investments or other transfers of assets to
the Company or any Restricted Subsidiary from any Unrestricted
Subsidiary, (y) proceeds realized by the Company or any Restricted
Subsidiary upon the sale of such Investment to a Person other than
the Company or any Subsidiary of the Company, or (z) the
redesignation of any Unrestricted Subsidiary as a Restricted
Subsidiary, not to exceed in the case of any of the immediately
preceding clauses (x), (y) or (z) the aggregate amount of
Restricted Investments made by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary on and after the Issue
Date, plus
(iv) to the extent that any Restricted Investment that was made on and
after the Issue Date is sold for cash or otherwise liquidated or
repaid for cash, the lesser of, to the extent paid to the Company
or a Restricted Subsidiary, (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
Investment.
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The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of declaration
thereof, if at said date of declaration such payment would have complied with
the foregoing provisions;
(ii) the redemption, repurchase, retirement, defeasance or other acquisition
of any Subordinated Indebtedness or Equity Interests of the Company in exchange
for, or out of the Net Cash Proceeds of the substantially concurrent sale (other
than to a Subsidiary of the Company) of, Equity Interests of the Company (other
than any Disqualified Stock); PROVIDED that the amount of any such Net Cash
Proceeds that are utilized for, and the Equity Interests issued or exchanged
for, any such redemption, repurchase, retirement, defeasance or other
acquisition shall be excluded from clause (c) of the preceding paragraph and
each other clause of this paragraph;
(iii) the defeasance, redemption, retirement, repurchase or other
acquisition of Subordinated Indebtedness with the Net Cash Proceeds from, or
issued in exchange for, a substantially concurrent incurrence of Permitted
Refinancing Indebtedness; PROVIDED that the amount of any such Net Cash Proceeds
that are utilized for any such redemption, repurchase, retirement, defeasance or
other acquisition shall be excluded from clause (c) of the preceding paragraph
and each other clause of this paragraph;
(iv) the payment of any dividend or other distribution by a Restricted
Subsidiary of the Company to the holders of its Equity Interests on a pro rata
basis;
(v) the repurchase, redemption or other acquisition or retirement for value
of any Equity Interests of the Company or any of its Restricted Subsidiaries
held by any member of the Company's or such Restricted Subsidiary's management;
PROVIDED that the aggregate price paid for all such repurchased, redeemed,
acquired or retired Equity Interests shall not exceed $1.0 million in any fiscal
year;
(vi) retiring any Equity Interests of the Company to the extent necessary
(as determined in good faith by a majority of the disinterested members of the
Board of Directors, whose determination shall be evidenced by a resolution
thereof) to prevent the loss, or to secure the renewal or reinstatement, of any
license or franchise held by the Company or any Restricted Subsidiary from any
governmental agency;
(vii) Investments in Telecommunications Assets, PROVIDED that the aggregate
fair market value (measured on the date each such Investment was made or
returned, as applicable), when taken together with all other Investments made
pursuant to this clause (vii) that are at the time outstanding, does not exceed
the sum of (y) $15.0 million, plus (z) the aggregate amount equal to the net
reduction in Investments made pursuant to this clause (vii) on and after the
Issue Date resulting from dividends, distributions, interest payments, return of
capital, repayments of such Investments or Net Cash Proceeds realized by the
Company or any Restricted Subsidiary upon the sale of such Investment to a
Person other than the Company or any Subsidiary of the Company, except to the
extent any such net reduction amount is included in the amount calculated
pursuant to clause (c) of the preceding paragraph or any other clause of this
paragraph;
(viii) Investments in Telecommunications Assets made with the Net Cash
Proceeds, the fair market value of Telecommunications Assets or Equity Interests
of a Person that becomes a Restricted Subsidiary (PROVIDED the assets of such
Person consist entirely or substantially entirely of Telecommunications Assets)
received from the sale (other than to a Subsidiary of the Company) of Equity
Interests of the Company (other than any Disqualified Stock) and, PROVIDED,
FURTHER, that the amount of any such Net Cash Proceeds that are utilized for any
such Investment shall be excluded from clause (c) of the preceding paragraph and
each other clause of this paragraph;
(ix) Investments in ION, PROVIDED that the aggregate fair market value
thereof (measured on the date each such Investment was made or returned, as
applicable), when taken together with all other
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Investments made pursuant to this clause (ix) does not exceed the sum of (I)
$15.0 million, plus, (II) for each fiscal year, an amount equal to the amount of
cash received by the Company or any of its Restricted Subsidiaries from ION or
any of its Subsidiaries during such fiscal year except to the extent any such
amount is included in the amount calculated pursuant to clause (c) of the
preceding paragraph or any other clause of this paragraph during such fiscal
year plus, (III) to the extent necessary to pay reasonable and necessary
operating expenses of ION, an amount not to exceed $1.0 million in each fiscal
year; and
(x) Investments in the German Joint Venture, PROVIDED that the aggregate
fair market value (measured on the date each such Investment was made or
returned, as applicable), when taken together with all other Investments made
pursuant to this clause (x) that are at the time outstanding, does not exceed
the sum of (I) $100.0 million, plus (II) the aggregate amount equal to the net
reduction in Investments made pursuant to this clause (x) on and after the Issue
Date resulting from dividends, distributions, interest payments, return of
capital, repayments of such Investments or Net Cash Proceeds realized by the
Company or any Restricted Subsidiary upon the sale of such Investment to a
Person other than the Company or any Subsidiary of the Company, except to the
extent such amount is included in the amount calculated pursuant to clause (c)
of the preceding paragraph or any other clause of this paragraph.
The Board of Directors may not designate any Subsidiary of the Company
(other than a newly created Subsidiary in which no Investment has previously
been made (other than any de minimus amount required to capitalize such
Subsidiary in connection with its organization)) as an Unrestricted Subsidiary
(a "Designation") unless:
(i) no Default or Event of Default shall have occurred and be continuing at
the time of or after giving effect to such Designation;
(ii) the Company would, immediately after giving effect to such Designation,
have been permitted to incur at least $1.00 of additional Indebtedness pursuant
to either clause (i) or (ii) of the first paragraph of the covenant described
below under the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock"; and
(iii) the Company would not be prohibited under the Indenture from making an
Investment at the time of such Designation (assuming the effectiveness of such
Designation for purposes of this covenant) in an amount equal to the fair market
value of the net Investment of the Company and all Restricted Subsidiaries in
such Subsidiary on such date.
In the event of any such Designation, all outstanding Investments owned by
the Company and its Restricted Subsidiaries in the Subsidiary so designated will
be deemed to be an Investment made as of the time of such Designation and will
reduce the amount available for Restricted Payments under the first or second
paragraph of this covenant or Investments, as applicable. All such outstanding
Investments will be deemed to constitute Restricted Payments in an amount equal
to the fair market value of such Investments at the time of such Designation.
The Indenture will further provide that a Designation may be revoked and an
Unrestricted Subsidiary may thus be redesignated as a Restricted Subsidiary (a
"Revocation") by a resolution of the Board of Directors delivered to the
Trustee; PROVIDED that the Company will not make any Revocation unless:
(i) no Default or Event of Default shall have occurred and be continuing at
the time of or after giving effect to such Designation; and
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding
immediately following such Revocation would, if incurred at such time, have been
permitted to be incurred at such time for all purposes under the Indenture.
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The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company (or such Restricted
Subsidiary, as the case may be) pursuant to the Restricted Payment. The fair
market value of any asset(s) or securities that are required to be valued by
this covenant shall be determined in good faith by the Board of Directors (such
determination to be based upon an opinion or appraisal issued by an accounting,
appraisal or investment banking firm of national standing if such fair market
value exceeds $15.0 million).
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise (including by
way of merger, consolidation or acquisition), with respect to (collectively,
"incur") any Indebtedness and the Company will not issue or incur any
Disqualified Stock and will not permit any of its Restricted Subsidiaries to
issue or incur any shares of Preferred Stock. However, the Company may incur
Indebtedness or issue or incur shares of Disqualified Stock and its Restricted
Subsidiaries may incur Acquired Debt or Acquired Preferred Stock if either:
(i) the Consolidated Leverage Ratio at the end of the Company's most
recently ended fiscal quarter (the "Reference Period") for which a consolidated
balance sheet of the Company is available immediately preceding the date on
which such additional Indebtedness is incurred or such Preferred Stock is issued
or incurred would have been less than 5.5 to 1.0 (if the Reference Period ends
on or prior to December 31, 2001), or 5.0 to 1.0 (if the Reference Period ends
subsequent to December 31, 2001), determined on a pro forma basis (including a
pro forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred, or the Preferred Stock had been issued, as the
case may be, at the beginning of the Reference Period; or
(ii) the Consolidated Capital Ratio at the end of the Reference Period would
have been less than 2.0 to 1.0, determined after giving effect to the incurrence
or issuance of such Indebtedness or Preferred Stock and, to the extent set forth
in the definitions used herein, on a pro forma basis (including a pro forma
application of the net proceeds therefrom).
Notwithstanding the foregoing, the provisions of the paragraph set forth
immediately above will not prohibit the incurrence of any of the following items
of Indebtedness (collectively, "Permitted Indebtedness"):
(a) the incurrence by the Company of Indebtedness represented by the Notes;
(b) the incurrence by the Company or any of its Restricted Subsidiaries of
Existing Indebtedness;
(c) the incurrence of Indebtedness by the Company to any Consolidated
Subsidiary or Indebtedness of any Restricted Subsidiary to the Company or
any Consolidated Subsidiary (but such Indebtedness shall be deemed to be
incurred upon such Indebtedness being held by any person other than the
Company or such Consolidated Subsidiary including upon Designation and
upon such Restricted Subsidiary otherwise no longer being a Consolidated
Subsidiary); PROVIDED that in the case of Indebtedness of the Company,
such obligations shall be unsecured and subordinated in all respects to
the Company's obligations pursuant to the Notes;
(d) the incurrence by the Company of Indebtedness in an aggregate amount
incurred and outstanding at any time pursuant to this clause (d) (plus
any Permitted Refinancing Indebtedness and any other Indebtedness
incurred to retire, defease, refinance, replace or refund such
Indebtedness) of up to $25.0 million;
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(e) the incurrence by the Company, or any Guarantee thereof by any
Restricted Subsidiary (other than any Foreign Subsidiary), of
Indebtedness pursuant to the Credit Agreement in an aggregate amount
incurred and outstanding at any time pursuant to this clause (e) (plus
any Permitted Refinancing Indebtedness and any other Indebtedness
incurred to retire, defease, refinance, replace or refund such
Indebtedness) of up to $150.0 million, minus the amount of any such
Indebtedness (i) retired with the Net Cash Proceeds from any Asset Sale
applied to permanently reduce the outstanding amounts or the commitments
with respect to such Indebtedness pursuant to the covenant "Asset Sales"
or (ii) assumed by a transferee in an Asset Sale;
(f) the incurrence by the Company or any Foreign Subsidiaries of Purchase
Money Indebtedness; PROVIDED that in each case, such Indebtedness shall
not constitute more than 100% of the cost (determined in accordance with
GAAP in good faith by the Board of Directors of the Company) to the
Company or such Foreign Subsidiary, as applicable, of the property so
purchased, developed, acquired, constructed, improved or leased;
(g) the incurrence by the Company or any of its Restricted Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or
hedging interest or foreign currency exchange rate risk with respect to
any floating rate Indebtedness or foreign currency based Indebtedness,
respectively, that is permitted by the terms of the Indenture to be
outstanding; PROVIDEDthat the notional amount of any such Hedging
Obligation does not exceed the amount of Indebtedness or other liability
to which such Hedging Obligation relates;
(h) the incurrence by a Foreign Subsidiary of Indebtedness pursuant to a
Foreign Subsidiary Credit Agreement (or any Guarantee thereof by any
other Foreign Subsidiary) in an aggregate principal amount incurred and
outstanding at any time pursuant to this clause (h) (plus any Permitted
Refinancing Indebtedness and any other Indebtedness incurred to retire,
defease, refinance, replace or refund such Indebtedness) of up to $50.0
million (or the equivalent thereof at the time of incurrence in the
applicable foreign currencies), minus the amount of any such Indebtedness
(i) retired with the Net Cash Proceeds from any Asset Sale applied to
permanently reduce the outstanding amounts or the commitments with
respect to such Indebtedness pursuant to the covenant "Asset Sales" or
(ii) assumed by a transferee of an Asset Sale;
(i) the Company and its Restricted Subsidiaries may incur Indebtedness
solely in respect of bankers acceptances, letters of credit and
performance bonds, all in the ordinary course of business in accordance
with customary industry practices, in amounts and for the purposes
customary in the Company's industry (other than to the extent not
supporting Indebtedness); and
(j) the incurrence by the Company or any of its Restricted Subsidiaries, as
applicable, of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to, refund, refinance or replace
Indebtedness that was incurred pursuant to the first paragraph hereof or
clauses (a), (b), (d), (e), (f), (h) or this clause (j) of this
paragraph.
Indebtedness or Preferred Stock of any Person which is outstanding at the
time such Person becomes a Restricted Subsidiary of the Company (including upon
designation of any Subsidiary or other Person as a Restricted Subsidiary or upon
a Revocation such that such Subsidiary becomes a Restricted Subsidiary) or is
merged with or into or consolidated with the Company or a Restricted Subsidiary
of the Company shall be deemed to have been incurred at the time such Person
becomes such a Restricted Subsidiary of the Company or is merged with or into or
consolidated with the Company or a Restricted Subsidiary of the Company, as
applicable.
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Upon each incurrence, the Company may designate pursuant to which provision
of this covenant such Indebtedness is being incurred and such Indebtedness shall
not be deemed to have been incurred by the Company under any other provision of
this covenant, except as stated otherwise in the foregoing provisions.
The Company will not, and will not permit any of its Restricted Subsidiaries
to, incur any Indebtedness (including Permitted Indebtedness) that is
contractually subordinated in right of payment to any other Indebtedness of the
Company unless such Indebtedness is also contractually subordinated in right of
payment to the Notes on substantially identical terms; PROVIDED, HOWEVER, that
no Indebtedness of the Company shall be deemed to be contractually subordinated
in right of payment to any other Indebtedness of the Company solely by virtue of
being unsecured.
LIENS
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, assume or otherwise cause or suffer
to exist or become effective any Lien of any kind (other than Permitted Liens)
upon any of their property or assets, now owned or hereafter acquired, or upon
any income or profits therefrom unless all payments due under the Indenture and
the Notes are secured (except as provided in the next clause) on an equal and
ratable basis with the obligations so secured and no Lien shall be granted or be
allowed to exist which secures Subordinated Indebtedness except with respect to
Acquired Debt, in which case, however, such Liens must be made junior and
subordinate to the Liens granted to the Holders of the Notes.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
The Company will not, and will not permit any of its Restricted 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 Restricted
Subsidiary to:
(i) (a) pay dividends or make any other distributions to the Company or any
of its Restricted Subsidiaries (y) on its Capital Stock or (z) 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 Restricted
Subsidiaries,
(ii) make loans or advances to the Company or any of its Restricted
Subsidiaries or
(iii) transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries.
However, the foregoing restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(a) Existing Indebtedness as in effect on the Issue Date,
(b) the Indenture, the Notes and Indebtedness ranking PARI PASSU with the
Notes provided such provisions are no more restrictive than the Notes,
(c) the Credit Agreement, any Foreign Subsidiary Credit Agreement, PROVIDED
that the restrictions contained in the Credit Agreement are no more
restrictive, taken as a whole, than those contained in a credit agreement
with terms that are commercially reasonable for a borrower that has
substantially comparable Indebtedness, and PROVIDED, FURTHER, that no
such provision shall prohibit or restrict the ability of any Restricted
Subsidiary to pay dividends or make other upstream distributions or other
payments to the Company or any of its Restricted Subsidiaries,
(d) applicable law,
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(e) any instrument governing Indebtedness or Capital Stock of a Person or
assets acquired by the Company or any of its Restricted 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 by the terms of
the Indenture to be incurred,
(f) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices,
(g) purchase money obligations (including pursuant to Purchase Money
Indebtedness 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, constructed, leased or improved,
(h) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary
pending its sale or other disposition, provided that the consummation of
such transaction would not result in an Event of Default or an event
that, with the passing of time or giving of notice or both, would
constitute an Event of Default, that such restriction terminates if such
transaction is not consummated and that the consummation or abandonment
of such transaction occurs within one year of the date such agreement was
entered into,
(i) Permitted Refinancing Indebtedness, PROVIDED that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded,
(j) Liens securing Indebtedness otherwise permitted to be incurred pursuant
to the provisions of the covenant described above under the caption
"--Liens" that limit the right of the Company or any of its Restricted
Subsidiaries to dispose of the assets subject to such Lien,
(k) provisions with respect to the disposition or distribution of assets or
property in joint venture agreements and other similar agreements entered
into in the ordinary course of business, and
(l) restrictions on cash or other deposits or net worth imposed by customers
under contracts entered into in the ordinary course of business.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Company may not, directly or indirectly, consolidate or merge with or
into (whether or not the Company is the surviving corporation), or sell, assign,
transfer, convey or otherwise dispose of all or substantially all of its
properties or assets, in one or more related transactions, to another Person
unless:
(i) the Company is the surviving corporation or the Person formed by or
surviving any such consolidation or merger (if other than the Company) or to
which such sale, assignment, transfer, 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 Person formed by or surviving any such consolidation or merger (if
other than the Company) or the Person to which such sale, assignment, transfer,
conveyance or other disposition shall have been made assumes all the obligations
of the Company under the Registration Rights Agreement, the Notes and the
Indenture pursuant to a supplemental indenture in a form reasonably satisfactory
to the Trustee;
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(iii) no Default or Event of Default (or an event that, with the passing of
time or giving of notice or both, would constitute an Event of Default) shall
exist or shall occur immediately after giving effect on a pro forma basis to
such transaction;
(iv) except in the case of a merger of the Company with or into a Wholly
Owned Restricted Subsidiary of the Company, the Company or the Person formed by
or surviving any such consolidation or merger (if other than the Company), or to
which such sale, assignment, transfer, conveyance or other disposition shall
have been made will immediately after such transaction and after giving pro
forma effect thereto and any related financing transactions as if the same had
occurred at the beginning of the applicable period, be permitted to incur at
least $1.00 of additional Indebtedness pursuant to either clause (i) or (ii) of
the first paragraph of the covenant described above under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock";
(v) if, as a result of any such transaction, property or assets of the
Company would become subject to a Lien subject to the provisions of the
Indenture described under "--Liens" above, the Company or the successor entity
to the Company shall have secured the Notes as required by said covenant; and
(vi) the Company shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture (if any) comply with the
Indenture.
The Indenture will also provide that the Company may not, directly or
indirectly, lease all or substantially all of its properties or assets, in one
or more related transactions, to any other Person. The provisions of this
covenant will not be applicable to a sale, assignment, transfer, conveyance or
other disposition of assets solely between or among the Company and its Wholly
Owned Restricted Subsidiaries.
Upon any consolidation or merger or any transfer of all or substantially all
of the assets of the Company in accordance with the foregoing, the successor
corporation formed by such consolidation or into which the Company is merged or
to which such transfer is made shall succeed to and (except in the case of a
lease) be substituted for, and may exercise every right and power of, the
Company under the Indenture with the same effect as if such successor
corporation had been named therein as the Company, and (except in the case of a
lease) the Company shall be released from the obligations under the Notes and
the Indenture except with respect to any obligations that arise from, or are
related to, such transaction.
For purposes of the foregoing, the transfer (by assignment, sale or
otherwise) of all or substantially all of the properties and assets of one or
more Subsidiaries, the Company's interest in which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
TRANSACTIONS WITH AFFILIATES
The Company will not, and will not permit any of its Restricted Subsidiaries
to, make any payment to, or sell, lease, transfer or otherwise dispose of any of
its properties or assets to, or purchase any property or assets from, or enter
into or make or amend any 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 not materially less
favorable to the Company or the relevant Restricted Subsidiary than those that
would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person, and
(ii) with respect to any Affiliate Transaction or series of related
Affiliate Transactions (A) involving aggregate consideration in excess of $5.0
million, the Company delivers to the Trustee a
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resolution of the Board of Directors set forth in an Officers' Certificate that
such Affiliate Transaction is approved by a majority of the disinterested
members of the Board of Directors and that, except with respect to matters
governed by the Management Agreement, certifying that such Affiliate Transaction
complies with clause (i) above and is in the best interests of the Company or
such Restricted Subsidiary and (B) if involving aggregate consideration in
excess of $15.0 million, a favorable written opinion as to the fairness to the
Company of such Affiliate Transaction from a financial point of view is also
obtained by the Company from an accounting, appraisal or investment banking firm
of national standing.
Notwithstanding the foregoing, the following items shall not be deemed to be
Affiliate Transactions:
(i) (a) the entering into, maintaining or performance of any employment
contract, collective bargaining agreement, benefit plan, program or arrangement,
related trust agreement or any other similar arrangement for or with any
employee, officer or director heretofore or hereafter entered into in the
ordinary course of business, including vacation, health, insurance, deferred
compensation, retirement, savings or other similar plans,
(b) the payment of compensation, performance of indemnification or
contribution obligations, or an issuance, grant or award of stock,
options, or other equity-related interests or other securities, to
employees, officers or directors in the ordinary course of business,
(c) any transaction with an officer or director in the ordinary course of
business not involving more than $100,000 in any one case, or
(d) Management Advances and payments in respect thereof,
(ii) transactions between or among the Company and/or its Restricted
Subsidiaries,
(iii) payment of reasonable directors fees,
(iv) any sale or other issuance of Equity Interests (other than Disqualified
Stock) of the Company,
(v) Affiliate Transactions in effect or approved by the Board of Directors
on the Issue Date, including any amendments thereto (PROVIDED that the terms of
such amendments are not materially less favorable to the Company than the terms
of such agreement prior to such amendment),
(vi) transactions with respect to capacity between the Company or any
Restricted Subsidiary and any Unrestricted Subsidiary or another Affiliate and
joint sales and marketing pursuant to an agreement or agreements between the
Company or any Restricted Subsidiary and any Unrestricted Subsidiary or another
Affiliate (PROVIDED that in the case of this clause (vi), such agreements are on
terms that are no less favorable to the Company or the relevant Restricted
Subsidiary than those that could have been obtained at the time of such
transaction in an arm's-length transaction with an unrelated third party or, in
the case of a transaction with an Unrestricted Subsidiary, ION or another
Affiliate, are either (x) entered into in connection with a transaction
involving the selection by a customer of cable system capacity entered into in
the ordinary course of business or (y) involve the provision by the Company or a
Restricted Subsidiary to an Unrestricted Subsidiary, ION or another Affiliate of
sales and marketing services, operations, administration and maintenance
services or development services for which the Company or such Restricted
Subsidiary receives a fair rate of return (as determined by the Board of
Directors and set forth in an Officers' Certificate delivered to the Trustee)
above its expenses of providing such services), and
(vii) Restricted Payments that are permitted by the covenant described above
under the caption "--Restricted Payments."
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BUSINESS ACTIVITIES
The Company will not, and will not permit any of its Restricted Subsidiaries
to, engage, to more than a de minimus extent, in any business other than a
Telecommunications Business.
PAYMENTS FOR CONSENT
The Company and each of its Restricted Subsidiaries will not 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 amend such
terms or provisions of the Indenture or the Notes in the time frame set forth in
the solicitation documents relating to such consent, waiver or agreement.
REPORTS
Whether or not required by the rules and regulations of the Securities and
Exchange Commission, so long as any Notes are outstanding, the Company will
furnish to the Trustee and the Holders of the Notes:
(i) all quarterly and annual financial information that would be required to
be contained in a filing with the Securities and Exchange Commission 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 consolidated 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
Securities and Exchange Commission on Form 8-K if the Company were required to
file such reports, in each case within the time periods specified in the
Securities and Exchange Commission's rules and regulations.
In addition, following the consummation of the Exchange Offer, whether or
not required by the rules and regulations of the Securities and Exchange
Commission, the Company will file a copy of all such information and reports
with the Securities and Exchange Commission for public availability within the
time periods specified in the Commission's rules and regulations (unless the
Securities and Exchange Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request.
EVENTS OF DEFAULT AND REMEDIES
The Indenture will provide that each of the following will constitute an
Event of Default:
(i) default for 30 days in the payment when due of interest on the Notes;
(ii) default in the payment when due of the principal of, or premium, if
any, on, the Notes;
(iii) failure by the Company or any of its Restricted Subsidiaries to comply
with the provisions described above under the captions "--Change of Control," or
"--Asset Sales";
(iv) failure by the Company or any of its Restricted Subsidiaries for 60
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 Restricted Subsidiaries (or the
payment of which is Guaranteed by the Company or any of its Restricted
Subsidiaries) whether such Indebtedness or Guarantee now exists, or is created
after the Issue Date, which default results in the acceleration of such
Indebtedness prior to its express maturity
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and, in each case, the amount of any such Indebtedness, together with the amount
of any other such Indebtedness or the maturity of which has been so accelerated,
aggregates $15 million or more;
(vi) failure by the Company or any of its Restricted Subsidiaries to pay
final judgments not subject to appeal aggregating in excess of $15 million (net
of applicable insurance coverage which is acknowledged in writing by the
insurer), which judgments are not paid, vacated, discharged or stayed for a
period of 60 days; and
(vii) certain events of bankruptcy or insolvency with respect to the Company
or any of its Restricted Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to 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, any Restricted Subsidiary that is a
Significant Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding Notes will
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 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 of, premium, if any, or interest on, the
Notes) if it determines that withholding notice is in their interest.
The Holders of a majority (or super majority of at least 66 2/3% in the case
of any covenant requiring 66 2/3% to amend) in aggregate principal amount of the
then outstanding Notes 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 principal of, premium, if any, or interest on the
Notes.
The Company will be required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company will be 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, INCORPORATORS OR
SHAREHOLDERS
No director, officer, employee, incorporator or shareholder of the Company,
as such, will have any liability for any obligations of the Company with respect
to the Notes or the Indenture, or for any claim based on, or in respect or by
reason of, such obligations or their creation. Each Holder of Notes by accepting
a Note will waive and release any and all such liability. Such waiver and
release are part of the consideration for issuance of the Notes. Such waiver may
not be effective to waive liabilities under federal securities laws and it is
the view of the Securities and Exchange Commission that such a waiver is against
public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Indenture will be discharged and cancelled upon the delivery by the
Company to the Trustee for cancellation of all the Notes or upon irrevocable
deposit with the Trustee, within not more than one year prior to the final
stated maturity of the Notes, or when the Notes are to be called for redemption
within one year under arrangements satisfactory to the Trustee, of funds
sufficient for the payment or redemption of all the Notes.
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In addition, the Indenture will provide that the Company may, at its option
and at any time, elect to have all of its obligations 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, premium, if any, and interest on such 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
its obligations released with respect to certain covenants that are contained in
the Indenture ("Covenant Defeasance") and, thereafter, any omission to comply
with such obligations will not constitute a Default or Event of Default. In the
event Covenant Defeasance occurs, certain events (but not including non-payment,
bankruptcy, receivership, rehabilitation or insolvency events) described under
"--Events of Default and Remedies" will no longer constitute an Event of
Default.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(i) 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 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, premium, if any, and
interest on the outstanding Notes on the stated maturity thereof 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 must deliver to the
Trustee an opinion of counsel in the United States reasonably acceptable to the
Trustee confirming that, since the Issue Date, the Company has received from, or
there has been published by, the Internal Revenue Service a ruling, or there has
been a change in the applicable United States 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 United States federal income tax purposes as a result of such Legal
Defeasance, and will be subject to United States 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 must deliver 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 United States federal income tax purposes as a result
of such Covenant Defeasance, and such Holders will be subject to United States
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;
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(v) such Legal Defeasance or Covenant Defeasance will not result in a breach
or violation of, or constitute a default under, any material agreement or
instrument (other than the Indenture) to which the Company or any of its
Restricted Subsidiaries is a party or by which the Company or any of its
Restricted Subsidiaries is bound;
(vi) the Company must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the Holders of the Notes over other creditors of the Company, or with
the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and
(vii) the Company must deliver to the Trustee an Officers' Certificate and
an opinion of counsel in the United States reasonably acceptable to the Trustee,
each stating that the conditions precedent provided for or relating to Legal
Defeasance or Covenant Defeasance, as applicable, in the case of the Officers'
Certificate, in clauses (i) through (vi) and, in the case of the opinion of
counsel, in clauses (i) (with respect to the validity and perfection of the
security interest) and clauses (ii) and (iii) of this paragraph, have been
complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the procedures
set forth in 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 will not be required to transfer or exchange any Note selected
for redemption. Also, the Company will not be required to transfer or exchange
any Note for a period of 15 days before:
(i) a selection of Notes to be redeemed,
(ii) an interest payment date, or
(iii) the mailing of notice of a Change of Control Offer or Asset Sale
Offer.
The registered Holder of a Note will be treated as the owner of it for all
purposes under the Indenture.
AMENDMENT, SUPPLEMENT AND WAIVER
The Indenture will contain provisions permitting the Company and the Trustee
to enter into a supplemental indenture for certain limited purposes without the
consent of the Holders. With the consent of the Holders of not less than a
majority in aggregate principal amount of the Notes at the time outstanding, the
Company and the Trustee are permitted to amend or supplement the Indenture or
any supplemental indenture or modify the rights of the Holders; PROVIDED that no
such modification may, without the consent of Holders of at least 66 2/3% in
aggregate principal amount of Notes at the time outstanding, modify the
provisions (including the defined terms used therein) of the covenant
"Repurchase at the Option of the Holders--Change of Control" in a manner adverse
to the Holders or, except with respect to the Lien on the Security Account,
release or modify a Lien granted to the Holders of the Notes; and PROVIDED that
no such modification may, without the consent of each Holder affected thereby:
(i) change the Stated Maturity on any Note, or reduce the principal amount
thereof or the rate (or extend the time for payment) of interest thereon or any
premium payable upon the redemption at the option of the Company thereof, or
change the place of payment where, or the coin or currency in which, any Note or
any premium or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment on or after the Stated Maturity
thereof (or, in the case of redemption at the option of the Company, on or after
the Redemption Date) or reduce the Change of
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Control Payment or the Asset Sale Offer Price after the corresponding Asset Sale
or Change of Control has occurred, or
(ii) alter the provisions (including the defined terms used therein)
regarding the right of the Company to redeem the Notes as a right, or at the
option, of the Company in a manner adverse to the Holders, or
(iii) reduce the percentage in principal amount of the outstanding Notes,
the consent of whose Holders is required for any such amendment, supplemental
indenture or waiver provided for in the Indenture, or
(iv) modify any of the waiver provisions, except to increase any required
percentage or to provide that certain other provisions of the Indenture cannot
be modified or waived without the consent of the Holder of each outstanding Note
affected thereby, or
(v) cause the Notes to become subordinate in right of payment to any other
Indebtedness, or
(vi) release any funds from the Security Account in any manner inconsistent
with the provisions of the Security Agreement as in effect on the Issue Date or
modify any provision of the Security Agreement in a manner adverse to the
Holders of the Notes.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes:
(i) to cure any ambiguity, defect or inconsistency,
(ii) to provide for uncertificated Notes in addition to or in place of
certificated Notes,
(iii) to provide for the assumption of the Company's obligations to Holders
of Notes in the case of a merger or consolidation or sale of all or
substantially all of the Company's assets in accordance with the terms of the
Indenture,
(iv) to make any change that would provide any additional rights or benefits
to the Holders of Notes or that does not adversely affect the legal rights under
the Indenture of any such Holder, or
(v) to comply with the requirements of the Securities and Exchange
Commission 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, 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 Securities and Exchange
Commission for permission to continue, or resign.
The Holders of a majority in principal amount 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. 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 person in the conduct of their 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.
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GOVERNING LAW
The Indenture and the Notes are governed by and construed in accordance with
the laws of the State of New York.
The Company will submit to the jurisdiction of the U.S. federal and New York
state courts located in the Borough of Manhattan, City and State of New York for
purposes of all legal actions and proceedings instituted in connection with the
Notes and the Indenture.
CERTAIN DEFINITIONS
We have provided below certain defined terms used in the Indenture. We urge
you to read the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used in this Prospectus for which we have provided
no definition.
"ACQUIRED DEBT" or "ACQUIRED PREFERRED STOCK" means, with respect to any
specified Person, Indebtedness or Preferred Stock of any other Person existing
at the time such other Person is merged with or into or became a Subsidiary of
such specified Person (including by Designation or Revocation) provided such
Indebtedness or Preferred Stock is not incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling, 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 Stock of a Person shall be
deemed to be control.
"ASSET SALE" means:
(i) the sale, lease, transfer, conveyance or other disposition of any assets
or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory in the ordinary course of
business and other than any sale, lease, transfer, conveyance or other
disposition in the ordinary course of business of capacity on any fiber
optic or cable system owned, controlled or operated by the Company or
any Restricted Subsidiary or of telecommunications capacity,
transmission rights, conduit or rights-of-way acquired by the Company or
any Restricted Subsidiary for use in a Telecommunications Business of
the Company or any Restricted Subsidiary (PROVIDED that the sale, lease,
transfer, conveyance or other disposition of all or substantially all of
the assets of the Company and its Restricted 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--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 Restricted Subsidiaries
of Equity Interests of any Subsidiary.
Notwithstanding the foregoing, the following items shall not be deemed to be
Asset Sales: (i) a transfer of assets by the Company to a Consolidated
Subsidiary or by a Subsidiary to the Company or to a Consolidated Subsidiary,
(ii) an issuance of Equity Interests by a Subsidiary to the Company or to a
Consolidated Subsidiary, (iii) a Restricted Payment that is permitted by the
covenant described above under the caption "--Certain Covenants--Restricted
Payments," (iv) Permitted Investments made in accordance with clause (a) or (c)
of the definition thereof, (v) a disposition of obsolete or worn out
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equipment or equipment that is no longer useful in the conduct of a
Telecommunications Business of the Company and its Restricted Subsidiaries and
that is disposed of in the ordinary course of business, (vi) the surrender or
waiver by the Company or any of its Restricted Subsidiaries of contract rights
or the settlement, release or surrender of contract, tort or other claims of any
kind by the Company or any of its Restricted Subsidiaries or the grant by the
Company or any of its Restricted Subsidiaries of a Lien not prohibited by the
Indenture, (vii) the sale of Cash Equivalents in the ordinary course of
business; and (viii) sales, transfers, assignments and other dispositions of
assets (or related assets in related transactions) in the ordinary course of
business with an aggregate fair market value of less than $1.0 million.
"BOARD OF DIRECTORS" means the board of directors or other governing body of
the Company or, if the Company is owned or managed by a single entity, the board
of directors or other governing body of such entity, or, in either case, any
committee thereof duly authorized to act on behalf of such board or governing
body.
"BOARD RESOLUTION" means a duly authorized resolution of the Board of
Directors.
"CAPITAL CONTRIBUTION" means any contribution to the equity of the Company
from a direct or indirect parent of the Company for which no consideration other
than the issuance of common stock with no redemption rights and no special
preferences, privileges or voting rights is given.
"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 or limited liability
company, partnership or membership 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 (provided that the full faith and credit
of the United States is pledged in support 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 a Thompson Bank Watch
Rating of "B" or better, (iv) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clause (ii)
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 Investors Service, Inc. or Standard & Poor's Ratings
Group and in each case maturing within six months after the date of acquisition
and (vi) money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (i)-(v) of this definition,
PROVIDED that with respect to any Foreign Subsidiary, Cash Equivalents shall
also mean those investments that are comparable to clauses (iii) through (vi)
above in such Foreign Subsidiary's country of organization or country where it
conducts business operations.
"CHANGE OF CONTROL" means the occurrence of any of the following:
(i) any "person" or "group" (as such terms are used in Section 13(d)(3) of
the Securities Exchange Act of 1934), other than a Permitted Holder, is
or becomes the beneficial owner, directly or indirectly, of 35% or more
of the Voting Stock (measured by voting power rather than number of
shares) of the Company and the Permitted Holders own, in the aggregate,
a
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lesser percentage of the total Voting Stock (measured by voting power
rather than by number of shares) of the Company than such person and do
not have the right or ability by voting power, contract or otherwise to
elect or designate for election a majority of the board of directors of
the Company (for the purposes of this clause, such other person shall be
deemed to "beneficially own" any Voting Stock of a specified corporation
held by a parent corporation if such other person beneficially owns,
directly or indirectly, more than 35% of the Voting Stock (measured by
voting power rather than by number of shares) of such parent corporation
and the Permitted Holders beneficially own, directly or indirectly, in
the aggregate a lesser percentage of Voting Stock (measured by voting
power rather than by number of shares) of such parent corporation and do
not have the right or ability by voting power, contract or otherwise to
elect or designate for election a majority of the board of directors of
such parent corporation),
(ii) during any period of two consecutive years, Continuing Directors cease
for any reason to constitute a majority of the Board of Directors of
the Company,
(iii) the Company consolidates or merges with or into any other Person, other
than a consolidation or merger (a) of the Company into a Wholly Owned
Restricted Subsidiary of the Company or (b) pursuant to a transaction
in which the outstanding Voting Stock of the Company is changed into or
exchanged for cash, securities or other property with the effect that
the beneficial owners of the outstanding Voting Stock of the Company
immediately prior to such transaction, beneficially own, directly or
indirectly, at least a majority of the Voting Stock (measured by voting
power rather than number of shares) of the surviving corporation
immediately following such transaction, or
(iv) the sale, 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
Restricted Subsidiaries taken as a whole to any person other than a
Wholly Owned Restricted Subsidiary of the Company or a Permitted Holder
or a person more than 50% of the Voting Stock (measured by voting power
rather than by number of shares) of which is owned, directly or
indirectly, following such transaction or transactions by the Permitted
Holders; PROVIDED, HOWEVER, that sales, transfers, conveyances or other
dispositions in the ordinary course of business of capacity on cable
systems owned, controlled or operated by the Company or any Restricted
Subsidiary or fiber optic or of telecommunications capacity or
transmission rights, rights-of-way or conduit acquired by the Company
or any Restricted Subsidiary for use in the Telecommunications Business
of the Company or a Restricted Subsidiary, including, without
limitation, for sale, lease, transfer, conveyance or other disposition
to any customer of the Company or any Restricted Subsidiary shall not
be deemed a disposition of assets for purposes of this clause (iv).
The definition of a Change of Control includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of "all or substantially
all" of the assets of the Company and its Restricted Subsidiaries taken as a
whole. The Indenture is governed by New York law, and there is no clearly
established meaning under New York law of the phrase "substantially all" of the
assets of a corporation. Accordingly, the ability of a Holder of Notes to
require the Company to purchase such Notes as a result of a sale, lease,
transfer, conveyance or other disposition of less than all of the assets of the
Company and its Restricted Subsidiaries taken as a whole to another Person or
group may be uncertain.
"CONSOLIDATED CAPITAL RATIO" means, with respect to the Company as of any
date, the ratio of (i) the aggregate consolidated amount of Indebtedness of the
Company and its Restricted Subsidiaries then outstanding to (ii) the
Consolidated Net Worth of the Company and its Consolidated Subsidiaries as of
such date.
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"CONSOLIDATED CASH FLOW" means, with respect to the Company for any period,
the Consolidated Net Income of the Company and its Consolidated Subsidiaries for
such period
plus (A) to the extent that any of the following items were deducted in
computing such Consolidated Net Income, but without duplication, (i) provision
for taxes based on income or profits of the Company and its Consolidated
Subsidiaries for such period, plus (ii) consolidated interest expense of the
Company and its Consolidated Subsidiaries for such period, whether paid or
accrued and whether or not capitalized (including, without limitation,
amortization of debt issuance costs and 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) plus (iii) depreciation, amortization
(including amortization of goodwill and other intangibles and the amount of
capacity available for sale (other than for backhaul capacity) charged to cost
of sales) but excluding amortization of prepaid cash expenses that were paid in
a prior period) and other non-cash expenses (excluding any such non-cash expense
to the extent that it represents an accrual of or reserve for cash expenses in
any future period or amortization of a prepaid cash expense that was paid in a
prior period) of the Company and its Consolidated Subsidiaries for such period,
minus (B) non-cash items increasing such Consolidated Net Income for such
period (other than items that were accrued in the ordinary course of business)
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 and other non-cash expenses
of, a Restricted Subsidiary of the Company shall be added to Consolidated Net
Income to compute Consolidated Cash Flow of the Company only to the extent that
a corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Restricted 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 that Restricted Subsidiary or its shareholders.
"CONSOLIDATED LEVERAGE RATIO" means, with respect to the Company, as of any
date, the ratio of (i) the aggregate consolidated amount of Indebtedness of the
Company and its Restricted Subsidiaries then outstanding to (ii) the annualized
Consolidated Cash Flow of the Company and its Consolidated Subsidiaries for the
most recently ended fiscal quarter.
"CONSOLIDATED NET INCOME" means, with respect to the Company for any period,
the aggregate of the Net Income of the Company and its Consolidated Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
PROVIDED that:
(i) the Net Income (but not loss) of any Person 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 Company or a Consolidated
Subsidiary thereof by such Person but not in excess of the Company's Equity
Interests in such Person,
(ii) the Net Income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar distributions by
that Restricted Subsidiary of that 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 Restricted Subsidiary or its
shareholders, except that the Company's equity in the net income of any such
Restricted Subsidiary for such period may be included in such Consolidated Net
Income up to
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the aggregate amount of cash that could have been distributed by such Restricted
Subsidiary during such period to the Company as a dividend,
(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,
(iv) the equity of the Company or any Restricted Subsidiary in the net
income (if positive) of any Unrestricted Subsidiary shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually distributed
by such Unrestricted Subsidiary during such period to the Company or a
Consolidated Subsidiary as a dividend or other distribution (but not in excess
of the amount of the Net Income of such Unrestricted Subsidiary for such period)
and
(v) the cumulative effect of a change in accounting principles shall be
excluded.
"CONSOLIDATED NET WORTH" means, with respect to the Company as of any date,
the sum of (i) the consolidated equity of the common shareholders of the Company
and its Consolidated Subsidiaries that are Consolidated Subsidiaries as of such
date plus (ii) the respective amounts reported on the Company'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 the Company upon issuance of such Preferred
Stock, less (x) all write-ups (other than write-ups resulting from foreign
currency translations and write-ups of tangible assets of a going concern
business made within 12 months after the acquisition of such business)
subsequent to the Closing Date in the book value of any asset owned by the
Company or a Restricted Subsidiary that is a Consolidated Subsidiary of the
Company, (y) all outstanding net Investments as of such date in unconsolidated
Restricted Subsidiaries and in Persons that are not Restricted Subsidiaries
(except, in each such case, Permitted Investments) and (z) all unamortized debt
discount and expense and unamortized deferred charges as of such date, all of
the foregoing determined in accordance with GAAP.
"CONSOLIDATED SUBSIDIARY" means, for any Person, each Restricted Subsidiary
of such Person (whether now existing or hereafter created or acquired) the
financial statements of which are consolidated for financial statement reporting
purposes with the financial statements of such Person in accordance with GAAP.
"CONTINUING DIRECTORS" means individuals who at the beginning of the period
of determination constituted the Board of Directors of the Company, together
with any new directors whose election by such Board of Directors or whose
nomination for election by the shareholders of the Company was approved by a
vote of a majority of the directors of the Company then still in office who were
either directors at the beginning of such period or whose election or nomination
for election was previously so approved or is the designee of any one of the
Permitted Holders or any combination thereof or was nominated or elected by any
such Permitted Holder(s) or any of their designees.
"CREDIT AGREEMENT" means one or more credit agreements, loan agreements or
similar facilities, secured or unsecured, entered into from time to time by the
Company and its Restricted Subsidiaries, and including any related notes,
Guarantees, collateral documents, instruments and agreements executed in
connection therewith, as the same may be amended, supplemented, modified,
restated or replaced from time to time.
"CURRENCY AGREEMENT" means, with respect to any Person, any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or beneficiary.
"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, in each case at the option of the holder thereof) 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; PROVIDED, HOWEVER, that any Capital Stock that
would constitute Disqualified Stock solely because the holders thereof have the
right to require the Company to repurchase such Capital Stock upon the
occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Company
may not repurchase or redeem any such Capital Stock pursuant to such provisions
unless such repurchase or redemption complies with the covenant described above
under the caption "--Certain Covenants Restricted Payments."
"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 ASSETS" means property, plant and equipment and other tangible
business assets existing as of the Closing Date used in a Telecommunications
Business of the Company, but does not include cash or Cash Equivalents existing
on the Closing Date, and the proceeds from the sale, disposition or other
transfer of any Existing Assets outside the ordinary course of business.
"EXISTING INDEBTEDNESS" means Indebtedness of the Company and its Restricted
Subsidiaries in existence on the Closing Date, until such amounts are repaid.
"FOREIGN SUBSIDIARY" means any Restricted Subsidiary of the Company which
(i) is not organized under the laws of the United States, any state thereof or
the District of Columbia, and (ii) conducts substantially all of its business
operations outside the United States of America.
"FOREIGN SUBSIDIARY CREDIT AGREEMENT" means one or more credit agreements,
loan agreements or similar facilities, secured or unsecured, entered into from
time to time by one or more of the Company's Foreign Subsidiaries, and including
any related notes, Guarantees, collateral documents, instruments and agreements
executed in connection therewith, as the same may be amended, supplemented,
modified, restated or replaced from time to time.
"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 Closing Date.
"GERMAN JOINT VENTURE" means the Person(s) formed or organized to engineer,
develop and construct the German Network.
"GOVERNMENT SECURITIES" means securities that are (a) direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentally thereof) of the
payment of which the full faith and credit of the United States of America is
pledged, (b) obligations of a Person controlled or supervised by and acting as
an agency or instrumentality of the United States of America the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America or (c) obligations of a Person the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America.
"GUARANTEE" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such other Person (whether arising by virtue of partnership
arrangements, or by agreement to keep-well, to purchase assets, goods,
securities or
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services, to take-or-pay, or to maintain financial statement conditions or
otherwise) or (ii) entered into for purposes of assuring in any other manner the
obligee of such Indebtedness of the payment thereof or to protect such obligee
against loss in respect thereof (in whole or in part) PROVIDED, HOWEVER, that
the term "Guarantee" shall not include endorsements for collection or deposit in
the ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under any Interest Rate Agreement or Currency Agreement.
"INDEBTEDNESS" 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 banker's acceptances or
representing Capital Lease Obligations or the balance of the deferred and unpaid
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 (other than letters of credit (or reimbursement
agreements in respect thereof), banker's acceptances and Hedging Obligations)
would appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP, as well as all Indebtedness of others secured by a Lien on
any asset of such Person (whether or not such Indebtedness is assumed by such
Person), Disqualified Stock of such Person and Preferred Stock of such Person's
Restricted Subsidiaries and, to the extent not otherwise included, the Guarantee
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 issued with original issue discount, but the
accretion of original issue discount in accordance with the original terms of
Indebtedness issued with an original issue discount will not be deemed to be an
incurrence, 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.
"INTEREST RATE AGREEMENT" means, with respect to any Person, any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement to which such Person is a party or beneficiary.
"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 directors, 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. If the Company or any of its Restricted Subsidiaries sells or otherwise
disposes of any Equity Interests of any direct or indirect Subsidiary such that,
after giving effect to any such sale or disposition, such Person is no longer a
Subsidiary of the Company or such Restricted Subsidiary, 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 final paragraph
of the covenant described above under the caption "--Certain Covenants and
Restricted Payments."
"ION" means International Optical Network, L.L.C., a Delaware limited
liability company.
"ISSUE DATE" means the date of first issuance of the Initial 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
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agreement to give any financing statement under the Uniform Commercial Code (or
equivalent statutes) of any jurisdiction).
"MANAGEMENT ADVANCES" means loans or advances made to directors, officers or
employees of the Company or any Restricted Subsidiary (i) in respect of travel,
entertainment or moving-related expenses incurred in the ordinary course of
business, (ii) in respect of moving-related expenses incurred in connection with
any closing or consolidation of any facility, or (iii) otherwise in the ordinary
course of business not exceeding $3.0 million in the aggregate at any time
outstanding.
"MANAGEMENT AGREEMENT" means the Metromedia Management Agreement as the same
may be amended, supplemented, modified, restated or replaced from time to time
with the approval of a majority of the disinterested members of the Board of
Directors.
"NET CASH PROCEEDS" means the aggregate amount of cash or Cash Equivalents
received by the Company in the case of a sale, or Capital Contribution in
respect, of Capital Stock and by the Company and its Restricted Subsidiaries in
respect of an Asset Sale plus, in the case of an issuance of Capital Stock upon
any exercise, exchange or conversion of securities (including options, warrants,
rights and convertible or exchangeable debt) of the Company that were issued for
cash on or after the Closing Date, the amount of cash originally received by the
Company upon the issuance of such securities (including options, warrants,
rights and convertible or exchangeable debt) less, in each case, the sum of all
payments, fees, commissions and reasonable and customary expenses (including,
without limitation, the fees and expenses of legal counsel and investment
banking fees and expenses) incurred in connection with such Asset Sale or sale
of Capital Stock, and, in the case of an Asset Sale only, less the amount
(estimated reasonably and in good faith by the Company) of income, franchise,
sales and other applicable federal, state, provincial, foreign and local taxes
required to be paid or accrued as a liability by the Company or any of its
respective Restricted Subsidiaries in connection with such Asset Sale in the
taxable year that such sale is consummated or in the immediately succeeding
taxable year, the computation of which shall take into account the reduction in
tax liability resulting from any available operating losses and net operating
loss carryovers, tax credits and tax credit carryforwards, and similar tax
attributes.
"NET INCOME" means, with respect to any Person, the net income (loss) of
such Person, 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 or (b) the disposition of
any securities by such Person or any of its Restricted Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Restricted
Subsidiaries and (ii) any extraordinary gain or loss, together with any related
provision for taxes on such extraordinary gain or loss.
"NON-RECOURSE DEBT" means Indebtedness (i) as to which neither the Company
nor any Restricted Subsidiary (a) provides any Guarantee or credit support of
any kind (including any undertaking, guarantee, indemnity, agreement or
instrument that would constitute Indebtedness) or (b) is directly or indirectly
liable (as a guarantor or otherwise) and (ii) no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an Unrestricted Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness of the Company or any
Restricted Subsidiary to declare a default under such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its Stated
Maturity.
"OFFICER" means the President, the Chief Executive Officer, any Executive
Vice President, and the Chief Financial Officer of the Company.
"OFFICERS' CERTIFICATE" means a certificate signed by two Officers.
"PARI PASSU INDEBTEDNESS" means Indebtedness of the Company ranking PARI
PASSU in right of payment with the Notes.
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"PERMITTED HOLDER" means Metromedia Company, its general partners and their
respective Related Persons and Persons that would constitute a Class B Permitted
Holder as defined in the Company's Amended and Restated Certificate of
Incorporation.
"PERMITTED INVESTMENTS" means (a) any Investment in the Company or in a
Consolidated Subsidiary of the Company that is engaged entirely or substantially
entirely in a Telecommunications Business; (b) any Investment in Cash
Equivalents; and (c) any Investment by the Company or any of its Restricted
Subsidiaries in a Person, if as a result of such Investment (i) such Person
becomes a Consolidated Subsidiary of the Company that is engaged entirely or
substantially entirely in a Telecommunications Business or (ii) 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
Consolidated Subsidiary of the Company that is engaged entirely or substantially
entirely in a Telecommunications Business.
"PERMITTED LIENS" means (i) Liens to secure Indebtedness permitted by
clauses (e) (f), (g) and (h) of the second paragraph of the covenant described
above under the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock", PROVIDED that with respect to Liens to secure Indebtedness permitted by
clause (f) thereof or any Permitted Refinancing Indebtedness of such
Indebtedness, such Lien must cover only the assets acquired with such
Indebtedness; (ii) Liens in favor of the Company or any Restricted Subsidiary;
(iii) Liens on property of a Person existing at the time such Person is merged
with or into or consolidated with the Company or any of its Restricted
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
such Restricted Subsidiary; (iv) Liens on property existing at the time of
acquisition thereof by the Company or any of its Restricted 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 existing on the Closing
Date; (vii) 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; (viii) zoning restrictions, rights-of-way,
easements and similar charges or encumbrances incurred in the ordinary course
which in the aggregate do not detract from the value of the property thereof,
and (ix) Liens incurred in the ordinary course of business of the Company or any
of its Restricted Subsidiaries with respect to obligations that do not exceed
$5.0 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 such
Restricted Subsidiary.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of the Company
or any of its Restricted 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 of its Restricted Subsidiaries
(other than intercompany Indebtedness); PROVIDED that: (i) the principal amount
(or accreted value, if applicable) of such Permitted Refinancing Indebtedness
does not exceed the principal amount of (or accreted value, if applicable), plus
accrued interest on, the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of any premium required to be
paid in connection with such refinancing pursuant to the terms of such
Indebtedness or otherwise reasonably determined by the Company to be necessary
and reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date later than the final maturity
date of, and has a Weighted Average Life to Maturity equal to or greater than
the
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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
Indebtedness has a final maturity date later than the final maturity date of,
and is expressly subordinated in right of payment to, the Notes on terms at
least as favorable to the Holders of the Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (iv) such Indebtedness is incurred solely by the
Company or the Restricted Subsidiary who is the obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded; and (v)
such Indebtedness is secured only by the assets, if any, that secured the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"PERSON" means any individual, corporation, partnership, joint venture,
limited liability company, incorporated or unincorporated association,
joint-stock company, trust, unincorporated organization or government or other
agency or political subdivision thereof or other entity of any kind.
"PREFERRED STOCK" means any Equity Interest of any class or classes of a
Person (however designated) which is preferred as to payments of dividends, or
as to distributions upon any liquidation or dissolution, over Equity Interests
of any other class of such Person.
"PUBLIC EQUITY OFFERING" means an underwritten offering of common stock of
the Company for cash pursuant to an effective registration statement under the
Securities Act.
"PURCHASE MONEY INDEBTEDNESS" means Indebtedness (including Acquired Debt,
in the case of leases, Capital Lease Obligations, mortgage financings and
purchase money obligations) incurred for the purpose of financing all or any
part of the cost of the engineering, construction, installation, acquisition,
lease (other than pursuant to a sale and leaseback of Existing Assets),
development or improvement of any Telecommunications Assets used by the Company
or any Restricted Subsidiary, in the case of Indebtedness incurred by the
Company, or any Foreign Subsidiary, in the case of Indebtedness incurred by any
Foreign Subsidiary, including any related notes, Guarantees, collateral
documents, instruments and agreements executed in connection therewith, as the
same may be amended, supplemented, modified or restated from time to time.
"RELATED PERSON" means any Person who controls, is controlled by or is under
common control with a Permitted Holder; PROVIDED, that for purposes of this
definition "control" means the beneficial ownership of more than 50% of the
total voting power of a Person normally entitled to vote in the election of
directors, managers or trustees, as applicable, of a Person.
"RESTRICTED INVESTMENT" means any Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary. Unless the context specifically
requires otherwise, Restricted Subsidiary means a direct or indirect Restricted
Subsidiary of the Company.
"SIGNIFICANT SUBSIDIARY" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"STATED MATURITY" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"SUBORDINATED INDEBTEDNESS" means Indebtedness of the Company that is
subordinated in right of payment by its terms or the terms of any document or
instrument or instrument relating thereto to the Notes, in any respect.
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"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 that 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 or of one or more
Subsidiaries of such Person (or any combination thereof).
"TELECOMMUNICATIONS ASSETS" means all assets, rights (contractual or
otherwise) and properties, whether tangible or intangible, used or intended for
use in connection with a Telecommunications Business and the Equity Interests of
a Person engaged entirely or substantially entirely in a Telecommunications
Business.
"TELECOMMUNICATIONS BUSINESS" means the business of (i) transmitting, or
providing services relating to the transmission of, voice, video or data through
owned or leased transmission facilities, (ii) constructing, 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 primarily
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 Directors of the Company.
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary of the Company that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
Board Resolution; but only to the extent that such Subsidiary at the time of
such designation: (a) has no Indebtedness other than Non-Recourse Debt; (b) is a
Person with respect to which neither the Company nor any of its Restricted
Subsidiaries has any direct or indirect obligation to maintain or preserve such
Person's financial condition or to cause such Person to achieve any specified
levels of operating results; and (c) has not Guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of the Company or any of
its Restricted Subsidiaries. Any such designation by the Board of Directors
shall be evidenced by filing with the Trustee a certified copy of the Board
Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and was
permitted by the covenant described above under the caption "--Certain Covenants
and Restricted Payments." The Board of Directors of the Company may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that such designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of the Company of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if (i) such
Indebtedness is permitted under the covenant described under the caption
"--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock," calculated on a pro forma basis as if such designation had occurred at
the beginning of the applicable reference period, and (ii) no Default or Event
of Default would be in existence following such designation.
"VOTING STOCK" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"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 RESTRICTED SUBSIDIARY" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors'
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qualifying shares) shall at the time be owned by such Person or by one or more
Wholly Owned Restricted Subsidiaries of such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
BOOK-ENTRY, DELIVERY AND FORM
Except as described below, we will initially issue the Exchange Notes in the
form of one or more registered Exchange Notes in global form without coupons
(each a "Global Note"). We will deposit each Global Note on the date of the
closing of the Exchange Offer (the "Exchange Offer Closing Date") with, or on
behalf of, DTC in New York, New York, and register the Exchange Notes in the
name of DTC or its nominee, or will leave such Notes in the custody of the
Trustee.
DEPOSITORY PROCEDURES
We are providing you with the following description of the operations and
procedures of DTC, Euroclear and Cedel solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to change by them from time to time. We take
no responsibility for these operations and procedures and urge you to contact
the system or their participants directly to discuss these matters.
DTC has advised us that it is a limited-purpose trust company created to
hold securities for its participating organizations (collectively, the "Direct
Participants") and to facilitate the clearance and settlement of transactions in
those securities between Direct Participants through electronic book-entry
changes in accounts of Participants. The Direct Participants include securities
brokers and dealers (including the Initial Purchasers), banks, trust companies,
clearing corporations and certain other organizations, including Euroclear and
Cedel. Access to DTC's system is also available to other entities that clear
through or maintain a direct or indirect, custodial relationship with a Direct
Participant (collectively, the "Indirect Participants" and together with the
Direct Participants, the "Participants"). DTC may hold securities beneficially
owned by other persons only through the Direct Participants or Indirect
Participants and such other persons' ownership interest and transfer of
ownership interest will be recorded only on the records of the Direct
Participant and/or Indirect Participant, and not on the records maintained by
DTC.
DTC has also advised us that, pursuant to DTC's procedures, (i) upon deposit
of the Global Notes, DTC will credit the accounts of the Direct Participants
with an interest in the Global Notes, and (ii) DTC will maintain records of the
ownership interests of such Direct Participants in the Global Notes and the
transfer of ownership interests by and between Direct Participants. DTC will not
maintain records of the ownership interests of, or the transfer of ownership
interests by and between, Indirect Participants or other owners of beneficial
interests in the Global Notes. Direct Participants and Indirect Participants
must maintain their own records of ownership interests of, and the transfer of
ownership interests by and between, Indirect Participants and other owners of
beneficial interests in the Global Notes.
Investors in the Global Notes may hold their interests in such Notes
directly through DTC if they are Direct Participants in DTC or indirectly
through organizations (including Euroclear and Cedel) that are Direct
Participants in DTC. Euroclear and Cedel will hold interests in the Global Notes
on behalf of their participants through customers' securities accounts in their
respective names on the books of their respective depositories, which are Morgan
Guaranty Trust Company of New York, Brussels office, as operator of Euroclear,
and Citibank, N.A., as operator of Cedel. All interests in a Global Notes,
including those held through Euroclear or Cedel, may be subject to the
procedures and requirements of DTC. Those interests held through Euroclear or
Cedel may also be subject to the procedures and requirements of such systems.
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The laws of some states require that certain persons may take physical
delivery in definitive, certificated form, of securities that they own. This may
limit or curtail the ability to transfer beneficial interests in a Global Note
to such persons. Because DTC can act only on behalf of Direct Participants,
which in turn act on behalf of Indirect Participants and others, the ability of
a person having a beneficial interest in a Global Note to pledge such interest
to persons or entities that are not Direct Participants in DTC, or to otherwise
take actions in respect of such interests, may be affected by the lack of
physical certificates evidencing such interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
"HOLDERS" THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments with respect to the principal of, premium, if any, and interest on,
any Exchange Notes represented by a Global Note registered in the name of DTC or
its nominee on the applicable record date will be payable by the Trustee to or
at the direction of DTC or its nominee in its capacity as the registered holder
of the Global Note representing such Exchange Notes under the Indenture. Under
the terms of the Indenture, we and the Trustee will treat the persons in whose
names the Notes are registered (including Notes represented by Global Notes) as
the owners thereof for the purpose of receiving payments and for any and all
other purposes whatsoever. Payments in respect of the principal, premium,
liquidated damages, if any, and interest on Global Notes registered in the name
of DTC or its nominee will be payable by the Trustee to DTC or its nominee as
the registered Holder under the Indenture. Consequently, none of us, the Trustee
or any of our agents, or the Trustee's agents has or will have any
responsibility or liability for (i) any aspect of DTC's records or any Direct
Participant's or Indirect Participant's records relating to or payments made on
account of beneficial ownership interests in the Global Notes or for
maintaining, supervising or reviewing any of DTC's records or any Direct
Participant's or Indirect Participant's records relating to the beneficial
ownership interests in any Global Note or (ii) any other matter relating to the
actions and practices of DTC or any of its Direct Participants or Indirect
Participants.
DTC has advised us that its current practice, upon receipt of any payment in
respect of securities such as the Notes (including principal and interest), is
to credit the accounts of the relevant Participants with the payment on the
payment date, in amounts proportionate to their respective holdings in the
principal amount of beneficial interest in the relevant security as shown on the
records of DTC, unless DTC has reason to believe it will not receive payment on
such payment date. Payments by the Direct Participants and the Indirect
Participants to the beneficial owners of interests in the Global Note will be
governed by standing instructions and customary practice and will be the
responsibility of the Direct Participants or the Indirect Participants, as the
case may be, and will not be the responsibility of DTC, the Trustee or us.
None of us or the Trustee will be liable for any delay by DTC or any Direct
Participant or Indirect Participant in identifying the beneficial owners of the
related Exchange Notes and we and the Trustee may conclusively rely on, and will
be protected in relying on, instructions from DTC for all purposes (including
with respect to the registration and delivery, and the respective principal
amounts, of the Exchange Notes).
Except for trades involving only Euroclear and Cedel participants, interests
in the Global Notes are expected to be eligible to trade in DTC's Same-Day Funds
Settlement System and secondary market trading activity in such interests will,
therefore, settle in immediately available funds, subject in all cases to the
rules and procedures of DTC and its Participants. Please refer to the section in
this Prospectus entitled "--Same Day Settlement and Payment."
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same day funds, and transfers between
participants in Euroclear and Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
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Cross-market transfers between the Participants in DTC, on the one hand, and
Euroclear or Cedel participants, on the other hand, will be effected through DTC
in accordance with DTC's rules on behalf of Euroclear or Cedel, as the case may
be, by its respective depositary. However, such cross market transactions will
require delivery of instructions to Euroclear or Cedel, as the case may be, by
the counterparty in such system in accordance with the rules and procedures and
within the established deadlines (Brussels time) of such system. Euroclear or
Cedel, as the case may be, will, if the transaction meets its settlement
requirements, deliver instructions to its respective depositary to take action
to effect final settlement on its behalf by delivering or receiving interests in
the relevant Global Note in DTC and making or receiving payment in accordance
with normal procedures for same-day funds settlement applicable to DTC.
Euroclear participants and Cedel participants may not deliver instructions
directly to the depositories for Euroclear or Cedel.
DTC has advised us that it will take any action permitted to be taken by a
Holder of Notes only at the direction of one or more Participants to whose
account DTC has credited the interests in the Global Notes and only in respect
of such portion of the aggregate principal amount of the Notes as to which such
Participant or Participants has or have given such direction. However, if there
is an Event of Default with respect to the Notes, DTC reserves the right to
exchange the Global Notes for legended Notes in certificated form, and to
distribute such Notes to its Participants.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to
facilitate transfers of interests in the Regulation S Global Notes and in the
Global Notes among Participants in DTC, Euroclear and Cedel, they are under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. None of us, the Trustee or any of
our or the Trustee's respective agents will have any responsibility for the
performance by DTC, Euroclear or Cedel or their respective participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A Global Note is exchangeable for definitive Notes in registered
certificated form if:
- DTC notifies us that it is unwilling or unable to continue as depository
for the Global Notes and we fail to appoint a successor depository within
90 days, or
- DTC ceases to be a clearing agency registered under the Securities
Exchange Act of 1934, or
- we elect to cause the issuance of the Certificated Notes upon a notice to
the Trustee, or
- a Default or Event of Default under the Notes has occurred and is
continuing, or
- such a request is made but only upon prior written notice given to the
Trustee by or on behalf of DTC in accordance with the Indenture.
In all cases, certificated Notes delivered in exchange for any Global Note
or beneficial interests in a Global Note will be registered in the names, and
issued in any approved denominations, requested by or on behalf of the
depositary (in accordance with its customary procedures).
EXCHANGE OF CERTIFICATED NOTES FOR BOOK-ENTRY NOTES
Notes issued in certificated form may not be exchanged for beneficial
interests in any Global Note unless the transferor first delivers to the Trustee
a written certificate (in the form provided in the Indenture) to the effect that
such transfer will comply with the appropriate transfer restrictions applicable
to such Notes.
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SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes represented by
the Global Notes (including principal, premium, if any, and interest) be made by
wire transfer of immediately available funds to the accounts specified by the
Holder of the Global Notes. With respect to Notes in certificated form, we will
make all payments of principal, premium, if any, and interest on the Notes at
our office or agency maintained for such purpose within the City and State of
New York (initially the office of the Paying Agent maintained for such purpose)
or, at our option, by check mailed to the Holders thereof at their respective
addresses set forth in the register of Holders of Notes. However, we are
required to make all payments of principal, premium, if any, and interest on
Notes in certificated form the Holders of which have given us wire transfer
instructions, by wire transfer of immediately available funds to the accounts
specified by the Holders thereof. The Notes represented by the Global Notes are
expected to be eligible to trade in DTC's Same-Day Funds Settlement System, and
any permitted secondary market trading activity in such Notes will, therefore,
be required by DTC to be settled in immediately available funds. We expect that
secondary trading in any certificated Notes will also be settled in immediately
available funds.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Note from a Direct
Participant or Indirect Participant in DTC will be credited, and any such
crediting will be reported to the relevant Euroclear or Cedel participant,
during the securities settlement processing day (which must be a business day
for Euroclear and Cedel) immediately following the settlement date of DTC. DTC
has advised us that cash received in Euroclear or Cedel as a result of sales of
interests in a Global Note by or through a Euroclear or Cedel participant to a
Participant in DTC will be received with value on the settlement date of DTC but
will be available in the relevant Euroclear or Cedel cash account only as of the
business day for Euroclear or Cedel following DTC's settlement date.
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CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
The following discussion is a summary of certain United States federal
income and estate tax considerations that may be relevant to the exchange of
Initial Notes for Exchange Notes pursuant to the Exchange Offer and to the
purchase, ownership and disposition of the Exchange Notes. This summary does not
purport to be a complete analysis of all of the potential United States federal
income and estate tax considerations relating to the purchase, ownership and
disposition of the Exchange Notes and generally does not address any other taxes
that might be applicable to a holder of the Exchange Notes. In the opinion of
Paul, Weiss, Rifkind, Wharton & Garrison, special United States tax counsel to
the Company, the discussion accurately reflects the material United States
federal income tax consequences to U.S. and non-U.S. Holders (as defined) of the
consummation of the Exchange Offer and the ownership and disposition of the
Exchange Notes. We cannot assure you that the United States Internal Revenue
Service (the "IRS") will take a similar view of such consequences. Further, the
discussion does not address all aspects of taxation that may be relevant to
particular holders of Initial Notes or Exchange Notes in light of their
individual circumstances (including the effect of any foreign, state or local
laws) or to certain types of purchasers subject to special treatment under
United States federal income tax laws (including dealers in securities,
insurance companies, financial institutions, persons that hold the Initial Notes
or Exchange Notes that are a hedge or that are hedged against currency risks or
that are part of a straddle or conversion transaction or a constructive sale,
persons whose functional currency is not the U.S. dollar and tax-exempt
entities). The discussion below assumes that the Initial Notes or Exchange Notes
are held as capital assets within the meaning of section 1221 of the Internal
Revenue Code of 1986, as amended (the "Code").
The discussion of the United States federal income and estate tax
considerations below is based on currently existing provisions of the Code, the
applicable Treasury regulations promulgated and proposed thereunder (the
"Treasury Regulations"), judicial decisions, and administrative interpretations,
all of which are subject to change, possibly on a retroactive basis. Because
individual circumstances may differ, you are strongly urged to consult your tax
advisor with respect to your particular tax situation and the particular tax
effects of any state, local, non-United States or other tax laws and possible
changes in the tax laws.
As used in this section, the term "U.S. Holder" means a beneficial owner of
an Exchange Note who or which is for United States federal income tax purposes
(i) a citizen or resident of the United States, (ii) a corporation, partnership
or other entity created or organized in or under the laws of the United States
or of any political subdivision thereof, (iii) an estate the income of which is
subject to United States federal income taxation regardless of its source or
(iv) a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust.
The term also includes certain former citizens of the United States whose income
and gain on the Exchange Notes will be subject to United States taxation. As
used herein, the term "Non-U.S. Holder" means a beneficial owner of an Exchange
Note that is not a U.S. Holder.
FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER
The exchange of Initial Notes for Exchange Notes pursuant to the Exchange
Offer will not be treated as an "exchange" or otherwise as a taxable event to
holders. Consequently, (i) no gain or loss will be realized by a holder upon
receipt of an Exchange Note, (ii) the holding period of the Exchange Note will
include the holding period of the Initial Note exchanged therefor and (iii) the
adjusted tax basis of the Exchange Note will be the same as the adjusted tax
basis of the Initial Note exchanged therefor immediately before the exchange.
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<PAGE>
TAX CONSIDERATIONS FOR U.S. HOLDERS
PAYMENTS OF INTEREST
Interest on an Exchange Note generally will be taxable to a U.S. Holder as
ordinary interest income at the time it accrues or is received in accordance
with the U.S. Holder's method of accounting for United States federal income tax
purposes.
MARKET DISCOUNT AND BOND PREMIUM
If a U.S. Holder purchases an Exchange Note for an amount that is less than
its principal amount, the difference generally will be treated as "market
discount". In such case, any partial principal payment on and gain realized on
the sale, exchange or retirement of the Exchange Note and unrealized
appreciation on certain nontaxable dispositions of the Note will be treated as
ordinary income to the extent of the market discount that has not previously
been included in income and that is treated as having accrued on the Exchange
Note prior to such payment or disposition and the U.S. Holder might be required
to defer all or a portion of the interest expense on any indebtedness incurred
or continued to purchase or carry such Exchange Note (in each case, unless the
U.S. Holder has made an election to include such market discount in income as it
accrues). Unless the U.S. Holder elects to treat market discount as accruing on
a constant yield method, market discount will be treated as accruing on a
straight-line basis over the remaining term of the Exchange Note. An election
made to include market discount in income as it accrues will apply to all debt
instruments acquired by the U.S. Holder on or after the first day of the taxable
year to which such election applies and may be revoked only with the consent of
the IRS.
If a U.S. Holder purchases an Exchange Note for an amount in excess of all
amounts payable on the Exchange Note after the purchase date, other than
payments of stated interest, such excess will be treated as "bond premium". In
general, a U.S. Holder may elect to amortize bond premium over the remaining
term of the Exchange Note on a constant yield method. The amount of bond premium
allocable to any accrual period is offset against the stated interest allocable
to such accrual period (and any excess may be deducted, subject to certain
limitations). An election to amortize bond premium applies to all taxable debt
instruments held at the beginning of the first taxable year to which such
election applies and thereafter acquired by the U.S. Holder and may be revoked
only with the consent of the IRS.
SALE, EXCHANGE OR RETIREMENT OF NOTES
Upon the sale, exchange or retirement of a an Exchange Note, a U.S. Holder
will recognize taxable gain or loss equal to the difference between the amount
of cash plus the fair market value of any property received (not including any
amount attributable to accrued but unpaid interest) and such holder's adjusted
tax basis in the Exchange Note. A U.S. Holder's adjusted tax basis in an
Exchange Note will be its cost, increased by any accrued market discount
included in income and reduced by any amortized bond premium and any principal
payment on the Exchange Note received by such holder.
Subject to the discussion of market discount above, gain or loss realized on
the sale, exchange or retirement of an Exchange Note by a U.S. Holder generally
will be capital gain or loss if the Exchange Note is held as a capital asset by
the U.S. Holder. Net capital gains of individuals are subject to tax at lower
rates than items of ordinary income. The deductibility of capital losses is
subject to limitations.
TAX CONSIDERATIONS FOR NON-U.S. HOLDERS
Generally, payments of principal or interest on the Exchange Notes by the
Company or any paying agent to a beneficial owner of an Exchange Note that is a
Non-U.S. Holder will not be subject to U.S. federal income or income withholding
tax, provided that, in the case of interest, (i) such Non-U.S.
119
<PAGE>
Holder does not own, actually or constructively, 10% or more of the combined
voting power of all classes of stock of the Company entitled to vote, (ii) such
Non-U.S. Holder is not, for U.S. federal income tax purposes, a controlled
foreign corporation related to the Company actually or constructively through
stock ownership, (iii) such Non-U.S. Holder is not a bank receiving interest
described in section 881(c)(3)(A) of the Code and (iv) either (a) the Non-U.S.
Holder provides the Company or its agent with an IRS Form W-8 (or a suitable
substitute form) signed under penalties of perjury that includes its name and
address and certifies as to its non-United States status in compliance with
applicable law and Treasury Regulations or (b) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business holds the Exchange
Note and provides a statement to the Company or its agent signed under penalties
of perjury in which such organization, bank or financial institution certifies
that such a Form W-8 (or suitable substitute) has been received by it from the
Non-U.S. Holder or from another financial institution acting on behalf of the
Non-U.S. Holder and furnishes the Company or its agent with a copy thereof. If
these requirements cannot be met, a Non-U.S. Holder generally will be subject to
United States federal income withholding tax at a rate of 30% (or such lower
rate provided by an applicable treaty) with respect to payments of interest on
the Exchange Notes. The Non-U.S. Holder must inform the Company or its agent or
the financial institution to which the Non-U.S. Holder provided the Form W-8 (or
suitable substitute) within 30 days of any change in the information provided in
such form.
Treasury Regulations generally effective for payments made after December
31, 1999 (the "New Regulations") provide alternative methods for satisfying the
certification requirements described in clause (iv) above. The New Regulations
also will require, in the case of Exchange Notes held by a foreign partnership,
that (i) the certification be provided by the partners rather than by the
foreign partnership and (ii) the partnership provide certain information,
including a U.S. taxpayer identification number.
A Non-U.S. Holder of an Exchange Note generally will not be subject to
United States federal income or income withholding tax on gain realized on the
sale, exchange, redemption, retirement or other disposition of such Exchange
Note, unless (i) such Non-U.S. Holder is an individual who is present in the
United States for 183 days or more in the taxable year of the disposition, and
certain other conditions are met or (ii) such gain is effectively connected with
the conduct by such Non-U.S. Holder of a trade or business in the United States.
Notwithstanding the above, if a Non-U.S. Holder of an Exchange Note is
engaged in a trade or business in the United States and if interest on the
Exchange Note, or gain realized on the disposition of the Exchange Note, is
effectively connected with the conduct of such trade or business, the Non-U.S.
Holder generally will be subject to regular United States federal income tax on
such interest or gain in the same manner as if it were a U.S. Holder, unless an
applicable treaty provides otherwise. In addition, if such Non-U.S. Holder is a
foreign corporation, it may be subject to a branch profits tax equal to 30% (or
such lower rate provided by an applicable treaty) of its effectively connected
earnings and profits for the taxable year, subject to certain adjustments. Even
though such effectively connected income is subject to income tax, and may be
subject to the branch profits tax, it generally is not subject to income
withholding if the Non-U.S. Holder delivers a properly executed IRS Form 4224
(or other form applicable under the New Regulations) to the payor.
An Exchange Note held by an individual Non-U.S. Holder who at the time of
death is not a United States citizen or resident of the United States (as
defined for United States federal estate tax purposes) will not be subject to
United States federal estate taxation as a result of such individual's death
unless (i) the individual owns, actually or constructively, 10% or more of the
combined voting power of all classes of stock of the Company entitled to vote or
(ii) the interest on the Exchange Note is effectively connected with the conduct
by such individual of a trade or business in the United States.
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<PAGE>
TAX CONSIDERATIONS APPLICABLE TO BOTH U.S. HOLDERS AND NON-U.S. HOLDERS
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under current United States federal income tax law, a 31% backup withholding
tax might apply to certain payments on, and the proceeds from a sale, exchange
or redemption of, the Exchange Notes, unless the holder of the Exchange Note (i)
is a corporation or comes within certain other exempt categories and, when
required, demonstrates that fact or (ii) provides a correct taxpayer
identification number, certifies as to its exemption from backup withholding and
otherwise complies with applicable requirements of the backup withholding rules.
Backup withholding and information reporting generally will not apply to
payments made by the Company or a paying agent on an Exchange Note to a Non-U.S.
Holder if the certification described under "Tax Considerations for Non-U.S.
Holders" is duly provided or the Non-U.S. Holder otherwise establishes an
exemption and the payor does not have actual knowledge that the holder is a U.S.
Holder or that the conditions of any other exemption are not, in fact,
satisfied. The payments of proceeds from the disposition of an Exchange Note to
or through a non-United States office of a "broker" (as defined in applicable
Treasury Regulations) that is (i) a United States person, (ii) a controlled
foreign corporation for United States federal income tax purposes, (iii) a
foreign person, 50% or more of whose gross income from all sources for certain
periods is from activities effectively connected with the conduct of a United
States trade or business or (iv) after December 31, 1999, a foreign partnership
if either (a) more than 50% of the income or capital interest is owned by U.S.
Holders or (b) such partnership has certain connections to the United States,
will be subject to information reporting requirements unless such broker has
documentary evidence in its files of the holder's Non-U.S. Holder status and has
no actual knowledge to the contrary or otherwise establishes an exemption.
Before January 1, 2000, backup withholding will not apply to any payment of the
proceeds from the sale of an Exchange Note made to or through a foreign office
of a broker. However, after December 31, 1999, backup withholding might apply if
the broker has actual knowledge that the payee is a U.S. Holder. Payments of the
proceeds from the sale of an Exchange Note to or through the United States
office of a broker are subject to information reporting and possible backup
withholding unless the holder certifies, under penalties of perjury, that it is
not a U.S. Holder and that certain other conditions are met or otherwise
establishes an exemption, provided that the broker does not have actual
knowledge that the holder is a U.S. Holder or that the conditions of any other
exemption are not, in fact, satisfied.
Holders of Exchange Notes should consult their tax advisors regarding the
application of backup withholding in their particular situations, the
availability of an exemption therefrom, and the procedure for obtaining such an
exemption, if available. Any amounts withheld from payment under the backup
withholding rules will be allowed as a credit against the holder's United States
federal income tax liability and may entitle the holder to a refund if the
required information is furnished to the IRS.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX
ADVICE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR
TAX CONSEQUENCES TO YOU OF THE EXCHANGE OFFER AND OF PURCHASING, HOLDING AND
DISPOSING OF THE INITIAL NOTES OR THE EXCHANGE NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR NON-UNITED STATES TAX LAWS AND
ANY RECENT OR PROSPECTIVE CHANGES IN APPLICABLE TAX LAWS AND THE EFFECT OF THE
NEW REGULATIONS WITH RESPECT TO PAYMENTS MADE AFTER DECEMBER 31, 1999.
121
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer in exchange for Initial Notes acquired by such
broker-dealer as a result of market making or other trading activities may be
deemed to be an "underwriter" within the meaning of the Securities Act and,
therefore, must deliver a prospectus meeting the requirements of the Securities
Act in connection with any resales, offers to resell or other transfers of the
Exchange Notes received by it in connection with the Exchange Offer.
Accordingly, each such broker-dealer must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such Exchange Notes. 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. 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 Exchange Notes received in exchange for Initial Notes where such
Initial Notes were acquired as a result of market-making activities or other
trading activities. We have agreed that, starting on the consummation of the
Exchange Offer, and ending on the close of business 180 days after the
consummation of the Exchange Offer, we will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale.
We will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Exchange Notes 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 Exchange Notes. Any
broker-dealer that resells Exchange 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 Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit of any
such resale of Exchange Notes and any commissions or concessions 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 after the consummation of the Exchange Offer, we
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. We have agreed to pay all expenses incident to the
Exchange Offer (including the expenses of one counsel for the holders of the
Notes) other than commissions or concessions of any brokers or dealers and will
indemnify the holders of the Notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York, will pass upon
certain legal matters, including certain tax matters on our behalf, with respect
to the Exchange Notes.
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<PAGE>
EXPERTS
The consolidated financial statements of Metromedia Fiber Network, Inc. at
December 31, 1996 and December 31, 1997 and for the years then ended, appearing
in this Prospectus have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report thereon appearing elsewhere in this Prospectus. Our
consolidated statements of operations, stockholders' deficiency and cash flows
for the twelve months ended December 31, 1995 have been audited by M.R. Weiser &
Co. LLP, Certified Public Accountants, as stated on their report. Their report
contains an explanatory paragraph regarding an uncertainty as to our ability to
continue as a going concern. Such financial statements are included in reliance
upon such reports given upon the authority of such firms as experts in
accounting and auditing.
AVAILABLE INFORMATION
We have filed a Registration Statement on Form S-4 with the Securities and
Exchange Commission covering the Exchange Notes, and this Prospectus is part of
our Registration Statement. For further information on the Company and the
Exchange Notes, you should refer to our Registration Statement and its exhibits.
This Prospectus summarizes material provisions of contracts and other documents
that we refer you to. Since the Prospectus may not contain all the information
that you may find important, you should review the full text of these documents.
We have included copies of these documents as exhibits to our Registration
Statement.
We are currently subject to the periodic reporting and other informational
requirements of the Securities Exchange Act of 1934. In addition, the Indenture
governing the Initial Notes and the Exchange Notes to be issued in this Exchange
Offer requires that we file reports under the Securities Exchange Act of 1934
with the Securities and Exchange Commission and provide those reports to the
Trustee and holders of the Notes. The reports and other information that we file
with the Securities and Exchange Commission can be inspected and copied at
prescribed rates at the public reference facilities maintained by the Securities
and Exchange Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and will also be available for inspection and copying at
the regional offices of the Securities and Exchange Commission located at 7
World Trade Center, Suite 1300, New York, New York 10048 and the Citicorp Center
at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. You may
obtain information on the operation of the public reference facilities by
calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities
and Exchange Commission also maintains an Internet Web Site at
http://www.sec.gov that contains reports, proxy and information statements and
other information. You can also obtain copies of such materials from us upon
request. We have agreed that, whether or not we are required to do so by the
rules and regulations of the Securities and Exchange Commission, for so long as
any of the Exchange Notes remain outstanding, we will furnish you as a holder of
the Exchange Notes and will, if permitted, file with the Securities and Exchange
Commission (i) all quarterly and annual financial information that would be
required to be contained in a filing with the Securities and Exchange Commission
on Forms 10-Q and 10-K if we were required to file such forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by our certified independent accountants, and (ii) all reports that would be
required to be filed with the Securities and Exchange Commission on Form 8-K if
we were required to file such reports. In addition, for so long as any of the
Exchange Notes remain outstanding, we have agreed to make available to any
prospective purchaser of the Exchange Notes or beneficial owner of the Notes in
connection with any sale thereof the information required by Rule 144 under the
Securities Act.
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<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The following documents and other materials, which we have filed with the
Securities and Exchange Commission, are incorporated herein and specifically
made a part of this Prospectus by this reference:
(1) Annual Report on Form 10-K for the fiscal year ended December 31, 1997;
(2) Quarterly Reports on Form 10-Q for the quarters ended September 30, 1997,
March 31, 1998, June 30, 1998 and September 30, 1998;
(3) Proxy Statement for the Annual Meeting of Stockholders filed on May 18,
1998; and
(4) Current Reports on Form 8-K filed on February 24, 1998, June 15, 1998, July
16, 1998 and December 4, 1998.
In addition, all documents that we file with the Securities and Exchange
Commission pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Securities
Exchange Act of 1934 subsequent to the date of this Prospectus will be deemed to
be incorporated by reference into this Prospectus and to be a part hereof from
the date of filing of such documents with the Securities and Exchange
Commission. Any statement contained in this Prospectus or in a document
incorporated or deemed to be incorporated by reference in this Prospectus will
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained in this Prospectus or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded will not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
Statements contained in this Prospectus or in any document incorporated by
reference in this Prospectus as to the contents of any contract or other
document referred to herein or therein are not necessarily complete. In each
instance, where applicable, we refer you to the copy of such contract or other
document filed as an exhibit to the documents incorporated by reference, each
such statement being qualified in all respects by such reference.
This Prospectus incorporates documents by reference that are not presented
herein or delivered herewith. Copies of such documents, other than exhibits to
such documents that are not specifically incorporated by reference herein, are
available without charge to any person to whom this Prospectus is delivered,
upon written or oral request to: Metromedia Fiber Network, Inc., c/o Metromedia
Company, One Meadowlands Plaza, East Rutherford, NJ 07073; Attention: General
Counsel; tel: (201) 531-8000.
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METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Statements of Operations for the Nine-Month Periods Ended September 30,
1998 and 1997 (unaudited).......................................................... F-2
Consolidated Balance Sheet as of September 30, 1998 (unaudited)...................... F-3
Consolidated Statements of Cash Flows for the Nine-Month Periods Ended September 30,
1998 and 1997 (unaudited).......................................................... F-4
Notes to Consolidated Financial Statements (unaudited)............................... F-5
Reports of Independent Auditors...................................................... F-11
Consolidated Balance Sheets as of December 31, 1997 and 1996......................... F-13
Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and
1995............................................................................... F-14
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and
1995............................................................................... F-15
Consolidated Statements of Changes in Stockholders' Equity (Deficiency) for the years
ended December 31, 1997, 1996 and 1995............................................. F-16
Notes to Consolidated Financial Statements........................................... F-18
</TABLE>
F-1
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN 000'S, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
<S> <C> <C>
1998 1997
---------- ----------
Revenue................................................................................... $ 20,840 $ 1,745
Expenses:
Cost of sales........................................................................... 9,499 2,647
Selling, general and administrative..................................................... 9,811 3,722
Consulting and employment incentives.................................................... 248 19,124
Settlement agreement.................................................................... 3,400 --
Depreciation and amortization........................................................... 738 567
---------- ----------
Income (loss) from operations............................................................. (2,856) (24,315)
Interest income........................................................................... 5,028 491
Interest expense.......................................................................... (16) (732)
Income (loss) from joint venture.......................................................... (264) --
---------- ----------
Income (loss) before income taxes......................................................... 1,892 (24,556)
Income taxes.............................................................................. 825 --
---------- ----------
Net income (loss)......................................................................... $ 1,067 $ (24,556)
---------- ----------
---------- ----------
Net income (loss) per share, basic........................................................ $ .01 $ (.64)
---------- ----------
---------- ----------
Net income (loss) per share, diluted...................................................... $ .01 N/A
---------- ----------
---------- ----------
Weighted average number of shares outstanding, basic...................................... 93,196 38,652
---------- ----------
---------- ----------
Weighted average number of shares outstanding, diluted.................................... 108,604 N/A
---------- ----------
---------- ----------
</TABLE>
See accompanying notes
F-2
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(IN 000'S, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
<S> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents........................................................................ $ 76,335
Accounts receivable.............................................................................. 17,902
Prepaid expenses and other current assets........................................................ 1,042
-------------
Total current assets........................................................................... 95,279
Fiber optic transmission network and related equipment, net...................................... 148,579
Property and equipment, net...................................................................... 1,732
Investment in/advances to joint venture.......................................................... 2,537
Other assets..................................................................................... 7,300
-------------
Total assets................................................................................... $ 255,427
-------------
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................................. $ 3,409
Accrued expenses................................................................................. 39,119
Current portion of deferred revenue.............................................................. 6,409
Current portion of capital lease obligations..................................................... 55
-------------
Total current liabilities...................................................................... 48,992
Capital lease obligations.......................................................................... 19,687
Deferred revenue................................................................................... 32,006
Commitments and contingencies (see notes)
Stockholders' equity:
Class A common stock, $.01 par value; 180,000,000 shares authorized; 77,460,452 shares issued and
outstanding.................................................................................... 774
Class B common stock, $.01 par value; 20,000,000 shares authorized; 16,884,636 shares issued and
outstanding.................................................................................... 169
Additional paid-in capital....................................................................... 195,955
Accumulated deficit.............................................................................. (42,156)
-------------
Total stockholders' equity..................................................................... 154,742
-------------
Total liabilities and stockholders' equity..................................................... $ 255,427
-------------
-------------
</TABLE>
See accompanying notes
F-3
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN 000'S)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................................................... $ 1,067 $ (24,556)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities:
Depreciation and amortization......................................................... 738 567
Options issued for settlement agreement............................................... 3,000 --
Stocks, options and warrants issued for services...................................... 248 19,344
Reserve for accounts receivable....................................................... 156 --
Loss from joint venture............................................................... 264 --
CHANGE IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable................................................................... (17,221) (162)
Accounts payable and accrued expenses................................................. 3,442 (3,877)
Deferred revenue...................................................................... 26,920 8,225
Other................................................................................. (1,749) (3,411)
---------- ----------
Net cash provided by (used in) operating activities..................................... 16,865 (3,870)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures on fiber optic transmission network and related equipment............ (71,739) (1,522)
Deposit................................................................................... (4,675) --
Investment in/advances to joint venture................................................... (2,745) --
Capital expenditures on property and equipment............................................ (1,109) (225)
---------- ----------
Net cash used in investing activities................................................... (80,268) (1,747)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................................................... 892 10
Proceeds from issuance of preferred stock and warrants.................................... -- 32,500
Dividends paid on preferred stock......................................................... -- (77)
Repayments of notes payable and private placement......................................... -- (1,408)
Repayments of notes payable............................................................... -- (5,950)
Purchase of common stock.................................................................. -- (1,140)
Purchase of preferred stock............................................................... -- (2,038)
---------- ----------
Net cash provided by financing activities............................................... 892 21,897
---------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS...................................... (62,511) 16,280
CASH AND CASH EQUIVALENTS-BEGINNING OF PERIOD............................................. 138,846 464
---------- ----------
CASH AND CASH EQUIVALENTS-END OF PERIOD................................................... $ 76,335 $ 16,744
---------- ----------
---------- ----------
Supplemental information:
Interest paid........................................................................... $ 16 $ 1,145
---------- ----------
---------- ----------
Income taxes paid....................................................................... $ 3,080 $ --
---------- ----------
---------- ----------
Supplemental disclosure of significant non-cash investing activities:
Capital lease obligations............................................................... $ 19,742 $ --
---------- ----------
---------- ----------
Accrued capital expenditures............................................................ $ 32,743 $ --
---------- ----------
---------- ----------
</TABLE>
See accompanying notes
F-4
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS OPERATIONS AND LINE OF BUSINESS
We are a facilities-based provider of technologically advanced,
high-bandwidth, fiber optic communications infrastructure to communications
carriers and corporate/government customers in the United States. We focus our
operations on domestic intra-city fiber optic networks in clusters of Tier I
cities throughout the United States. We currently operate high-bandwidth fiber
optic communications networks in New York and within the next two quarters
expect to operate similar networks in Philadelphia and Washington, D.C. We have
also begun constructing and engineering networks in Chicago, San Francisco and
Boston and within the next two years we also plan to complete an expansion into
four additional markets including Los Angeles, Seattle, Dallas and Houston. We
expect that our domestic intra-city networks will ultimately encompass
approximately 756,000 fiber miles covering approximately 1,771 route miles.
We have also built inter-city fiber optic capacity to link certain of our
intra-city networks. We expect to have operational a 241 route mile network from
New York to Washington, D.C. during the first quarter of 1999, and when finally
complete, as currently planned, this network will cover approximately 180,000
fiber miles. We have also obtained rights for fiber optic capacity with other
facilities-providers and obtained fiber optic capacity linking certain of the
metropolitan areas (New York and Chicago, New York and Boston, Chicago and
Seattle and Portland) in which we plan to construct intra-city networks, except
in Portland.
In addition, we have entered into a joint venture with a U.K.
telecommunications company to connect our New York network to London and we have
announced that we intend to form a joint venture to construct a high-bandwidth
fiber optic network connecting 13 cities in Germany and obtain certain
additional fiber optic capacity in Western Europe. Please refer to the sections
in this Offering Memorandum entitled "Business" and "Risk Factors and Risks
Associated with Growth Strategy; Management of Expansion."
BASIS OF PRESENTATION
The interim unaudited consolidated financial statements in this Report have
been prepared in accordance with the United States Securities and Exchange
Commission's Regulation S-X and consequently do not include all disclosures
required under generally accepted accounting principles. The interim unaudited
consolidated financial statements should be read in conjunction with the audited
Consolidated Financial Statements of the Company and accompanying Notes for the
year ended December 31, 1997 contained in the Company's Annual Report on Form
10-K for the year then ended. The Form 10-K includes information with respect to
the Company's significant accounting and financial reporting policies and other
pertinent information. The Company believes that all adjustments of a normal
recurring nature that are necessary for a fair presentation of the results of
the interim periods presented in this report have been made. Certain balances
have been reclassified to conform to the current period presentation.
STOCK SPLITS
On December 22, 1998, the Company completed a two-for-one stock split of the
Company's Class A and Class B Common Stock in the form of a 100% stock dividend
to all shareholders of record as of the close of business on December 8, 1998.
On August 28, 1998, the Company completed a
F-5
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
two-for-one stock split of the Company's Class A and Class B Common Stock in the
form of a 100 percent stock dividend to all shareholders of record as of the
close of business on August 7, 1998. All share and per share amounts presented
herein give retroactive effect to the stock splits. (See note 8.)
RECOGNITION OF REVENUE
The Company recognizes revenue on telecommunications services ratably over
the term of the applicable lease agreements with customers. Amounts billed in
advance of the service provided are recorded as deferred revenue. The Company
also provides installation services for its customers, and as these services
typically are completed within a year, the Company records the revenues and
related costs for these services under the completed contract method. In
addition, the Company occasionally grants Indefeasible Rights of Use ("IRU's")
to portions of its network. For those grants occurring prior to completion of
the portion of the network granted, the Company recognizes revenue on these
telecommunication services using the percentage of completion method. Under the
percentage of completion method, progress is generally measured on performance
milestones relating to the contract where such milestones fairly reflect the
progress toward contract completion. Network construction costs include all
direct material and labor costs and those indirect costs related to contract
performance. General and administrative costs are charged to expense as
incurred. If necessary, the estimated loss on an uncompleted contract is
expensed in the period in which it is identified. Contract costs are estimated
using allocations of the total cost of constructing the specific phase of the
network. Revisions to estimated profits on contracts are recognized in the
period that they become known.
2. CONSULTING AND EMPLOYMENT INCENTIVES
The amounts represent the value of common stock, warrants and options issued
to consultants, officers, employees and directors of the Company as incentive to
provide services to the Company.
The 1997 amounts represent the value of options to purchase 12,380,940
shares of the Company's common stock issued in 1997 to officers, employees and
directors of the Company. The options have been valued in accordance with APB
Opinion No. 25 at the difference between the exercise price of the options and
the fair market value of the Company's common stock.
F-6
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. FIBER OPTIC TRANSMISSION NETWORK AND RELATED EQUIPMENT
Fiber optic transmission network and related equipment consist of the
following (in 000's):
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
<S> <C>
Material-fiber optic cable......................................................................... $ 4,900
Engineering and layout costs....................................................................... 4,123
Fiber optic cable installation costs............................................................... 2,668
Other.............................................................................................. 2,750
Construction in progress........................................................................... 135,960
-------------
150,401
Less: accumulated depreciation..................................................................... (1,822)
-------------
$ 148,579
-------------
-------------
</TABLE>
Construction in progress includes amounts incurred in the Company's
expansion of its network. These amounts include fiber optic cable and other
materials, engineering and other layout costs, fiber optic cable installation
costs and other network assets held under capital leases. Construction in
progress also includes payments for rights of way for the underlying sections of
the network build.
4. INVESTMENT IN/ADVANCES TO JOINT VENTURE
The Company has a joint venture agreement with Racal Telecommunications,
Inc. ("Racal"), that provides broad-based transatlantic communication services
between New York and London. As of December 31, 1997, neither party had yet made
a capital contribution. The balance of the investment at December 31, 1997
represents advances made to the joint venture by the Company. The Company
accounts for its investment using the equity method. During the first nine
months of 1998, each party made capital contributions of $2.8 million. The
Company and Racal may each be required to contribute additional capital as
needed for their respective 50% interests. As of September 30, 1998, the Company
recorded a $264,000 loss from the joint venture based on its 50% interest in the
joint venture. Included in the Company's accounts receivable is $168,000 for
administrative services provided to the joint venture through September 30,
1998.
5. GERMAN NETWORK BUILD
The Company signed a letter of intent with Viatel, Inc. and Carrier 1
Holdings, Ltd. to jointly build a national fiber optic telecommunications
network in Germany. Upon completion of construction, the Company will own its
own separate German broadband network. The Company expects construction to be
completed in stages, with the first segment expected to be available by the
third quarter of 1999. In connection with this agreement, the Company made a
deposit payment of $4.7 million. Upon signing a definitive agreement the Company
would expect to be required to provide an irrevocable standby letter of credit
as security for the construction costs of the network.
6. RELATED PARTY TRANSACTIONS
The Company is party to the Management Agreement with Metromedia Company
pursuant to which Metromedia Company provides the Company with consultation and
advisory services. These services encompass legal, insurance, personnel,
benefits and other corporate matters, cash management,
F-7
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
6. RELATED PARTY TRANSACTIONS (CONTINUED)
internal audit, finance, taxes and other services as may be reasonably requested
by the Company. The Management Agreement terminates on December 31, 1998 and is
automatically renewed for successive one-year terms unless either party
terminates upon 60 days notice. The management fee under the Management
Agreement is $500,000 per year. In addition, the Company is obligated to
reimburse Metromedia Company all of its out-of-pocket costs and expenses
incurred in connection with the agreement.
In fiscal 1997, Metromedia Company received no payments for its
out-of-pocket costs and expenses or for any other services rendered under the
Management Agreement. With respect to 1998, in accordance with the Management
Agreement, amounts expensed as of September 30, 1998 were $375,000.
In 1997, the Company paid in full the outstanding balance of a loan made to
the Company in prior years by the Company's majority shareholder at the time
such loan was advanced.
7. SETTLEMENT AGREEMENTS
The Company was a defendant in KATZ, ET AL. V. NATIONAL FIBER NETWORK, INC.,
ET AL., No. 97 Civ. 2764 (JGK) (the "Katz Litigation"). The subject matter of
the Katz Litigation is set forth in detail in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997, which description is
incorporated by reference herein and made a part hereof. In March 1998, the
Company entered into a settlement agreement with Howard Katz, Realprop Capital
Corporation and Evelyn Katz, among others, which settled and resulted in the
dismissal of the Katz Litigation.
8. EQUITY TRANSACTIONS
STOCK SPLITS
As discussed in Note 1, on December 22, 1998, the Company completed a
two-for-one stock split of the Company's Class A and Class B Common Stock in the
form of a 100% stock dividend to all shareholders of record as of the close of
business on December 8, 1998 and on August 28, 1998, the Company completed a
two-for-one stock split of the Company's Class A and Class B Common Stock in the
form of a 100 percent stock dividend to all shareholders of record as of the
close of business on August 7, 1998. All share and per share amounts presented
herein give retroactive effect to the stock splits. As of September 30, 1998,
adjusted for the effect of the stock dividend, the Company had 77,460,452 Class
A common shares outstanding and 16,884,636 Class B common shares outstanding.
STOCK OPTIONS
In 1997, the Company granted to key employees, officers and directors
options to purchase up to 12,380,940 shares of the common stock of the Company.
The options have exercise prices ranging from $0.49 to $1.91 per share, vesting
schedules ranging from immediate to twelve months from date of grant and expire
ten years after date of grant. The Company recorded non-cash charges of $53,000
and $248,000 for the three- and nine-month periods ending September 30, 1998,
respectively, to reflect the pro-rata value applicable to the vesting period of
such grants.
F-8
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
8. EQUITY TRANSACTIONS (CONTINUED)
STOCK WARRANTS
On December 31, 1996, the Company issued and sold to Penny Lane Partners, LP
("Penny Lane") for aggregate cash consideration of $2,025,000 (i) 300,000 shares
of 10% cumulative convertible preferred stock (the "Series A Preferred Stock")
bearing dividends at a rate of $.34 per share per annum, and (ii) warrants to
purchase 456,300 shares of Common Stock at an exercise price of $1.24 per share
of Common Stock (such number to be adjusted based on certain future events) at
an exercise price of $0.01 per share (the "Contingent Warrants"). In March 1997,
Penny Lane agreed to permit the Series A Preferred Stock and the Contingent
Warrants to be redeemed at an aggregate redemption price of $2,115,000 (which
includes accrued but unpaid dividends on the Series A Preferred Stock) and in
connection therewith the number of Penny Lane Warrants was increased from
456,300 to 912,600.
In January 1998, Penny Lane exercised all its warrants under the terms of
the agreement. Penny Lane elected to make a cashless exercise of its warrants
and the number of shares issuable upon exercise was reduced by the number of
shares at the closing price on the day of exercise having a value equal to the
aggregate exercise price. As such, Penny Lane was issued 691,024 shares in
connection with the exercise of all of its warrants.
9. CONTINGENCIES
(a) On or about October 20, 1997, Vento & Company of New York, LLC ("VCNY")
commenced an action against the Company, Stephen A. Garofalo, Peter Silverman,
the law firm of Silverman, Collura, Chernis & Balzano, P.C., Peter Sahagen,
Sahagen Consulting Group of Florida (collectively, the "Sahagen Defendants") and
Robert Kramer, Birdie Capital Corp., Lawrence Black, Sterling Capital LLC,
Penrush Limited, Needham Capital Group, Arthur Asch, Michael Asch and Ronald
Kuzon (the "Kramer Defendants") in the United States District Court for the
Southern District of New York (No. 97 CIV 7751) (the "VCNY Litigation"). On or
about May 29, 1998, plaintiff filed an amended complaint. The complaint, as
amended, alleges four causes of action including (i) violation of Section 10(b)
of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder;
(ii) fraud and fraudulent concealment; (iii) breach of fiduciary duty; and (iv)
negligent misrepresentation and omission made in connection with the sale by
VCNY of 900,000 shares (not adjusted for subsequent stock splits) of Class A
common stock to Peter Sahagen and the Kramer Defendants on January 13, 1997 (the
"VCNY Sale"). Plaintiff seeks, among other things, (i) on the first and second
causes of action, rescission of the VCNY Sale, or alternatively, damages in an
amount not presently ascertainable, but believed to be in excess of $36 million,
together with interest thereon; (ii) on the third and fourth causes of action,
damages in an amount not presently ascertainable, but believed to be in excess
of $36 million, together with interest thereon; (iii) punitive damages in the
amount of $50 million, and (iv) plaintiff's reasonable legal fees and the cost
of this action. All the defendants, including the Company and Stephen A.
Garofalo, have moved to dismiss the amended complaint. The Company intends to
vigorously defend itself against these allegations based on its belief that it
acted appropriately in connection with the matters at issue in this litigation.
However, no assurance can be made that the Company will not determine that the
advantages of entering into a settlement outweigh the risk and expense of
protracted litigation or that ultimately the Company will be successful in its
defense of the allegations. If the Company is unsuccessful in its defense of the
allegations, an award of the magnitude being sought by the plaintiff in the VCNY
Litigation would have a material adverse effect on the Company's financial
condition or results of operations.
F-9
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
9. CONTINGENCIES (CONTINUED)
(b) On or about June 12, 1998, Claudio E. Contardi commenced an action
against Peter Sahagen, Sahagen Consulting Group of Florida and the Company in
the United States District Court for the Southern District of New York (No. 98
CIV 4140). The plaintiff alleges a cause of action for, among other things,
breach of a finder's fee agreement entered into between Peter Sahagen and
plaintiff on or about November 14, 1996 and breach of an implied covenant of
good faith and fair dealing contained in the finder's fee agreement. Plaintiff
seeks, among other things, a number of shares of the Company not presently
ascertainable, but believed to be approximately 225,000 shares (calculated as of
the date on which the complaint was filed) or damages in an amount not presently
ascertainable, but believed to be approximately $4.9 million (calculated as of
the date on which the complaint was filed) and all costs and expenses incurred
by the plaintiff in this action. The Company has answered the complaint and
asserted affirmative defenses thereto, and the Company intends to vigorously
defend itself against these allegations based on its belief that it acted
appropriately in connection with the matters at issue in this litigation.
However, no assurances can be made that the Company will not determine that the
advantages of entering into a settlement outweigh the risk and expense of
protracted litigation or that ultimately the Company will be successful in its
defense of the allegations. The Company has filed an answer to the complaint and
has raised affirmative defenses.
F-10
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Metromedia Fiber Network, Inc.
We have audited the accompanying consolidated balance sheets of Metromedia
Fiber Network, Inc. and Subsidiaries (the "Company") as of December 31, 1997 and
1996, and the related consolidated statements of operations, stockholders'
deficiency and cash flows for each of the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Metromedia Fiber Network, Inc. and Subsidiaries as of December 31, 1997 and
1996, and the consolidated results of their operations and their cash flows for
the years then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
New York, New York
March 16, 1998
F-11
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Metromedia Fiber Network, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' deficiency and cash flows for the year ended December 31, 1995 of
Metromedia Fiber Network, Inc. and Subsidiary (the "Company"). These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows for the year ended December 31, 1995 of Metromedia Fiber Network,
Inc. and Subsidiary in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company's significant recurring
losses, operating history and significant working capital deficiency, including
significant amounts of past due payables, raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also discussed in Note 1. The consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and classification of
liabilities that might result from the outcome of this uncertainty.
M.R. Weiser & Co. LLP
New York, New York
June 26, 1996
F-12
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
<S> <C> <C>
1997 1996
-------------- --------------
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 138,846,458 $ 464,324
Accounts receivable............................................................ 836,628 180,790
Other current assets........................................................... 874,010 --
-------------- --------------
Total current assets......................................................... 140,557,096 645,114
Fiber optic transmission network and related equipment, net...................... 24,933,510 6,368,653
Property and equipment, net...................................................... 759,014 525,268
Investment in/advance to Joint Venture........................................... 56,015 --
Other assets..................................................................... 1,072,055 438,471
-------------- --------------
Total assets................................................................. $ 167,377,690 $ 7,977,506
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable............................................................... $ 3,072,091 $ 5,256,929
Accrued expenses............................................................... 3,180,010 917,526
Current portion of deferred revenue............................................ 1,183,633 --
Notes payable.................................................................. -- 7,358,000
-------------- --------------
Total current liabilities.................................................... 7,435,734 13,532,455
Deferred revenue................................................................. 10,311,023 1,107,724
Other............................................................................ 90,000 195,243
Commitments and Contingencies
Stockholders' equity (deficiency):
Preferred stock, $.10 par value, authorized 2,000,000 shares, none and 600,000
shares issued and outstanding, respectively.................................... -- 60,000
Common stock, $.01 par value; authorized 60,000,000 shares; none and 40,005,240
shares issued and outstanding, respectively.................................... -- 400,051
Class A common stock, $.01 par value; authorized 180,000,000 shares; 74,896,568
shares and none issued and outstanding, respectively........................... 748,966 --
Class B common stock, $.01 par value; authorized 20,000,000 shares; 16,884,636
shares and none issued outstanding, respectively............................... 168,846 --
Additional paid-in capital....................................................... 191,845,909 8,421,468
Accumulated deficit.............................................................. (43,222,788) (15,739,435)
-------------- --------------
Total stockholders' equity (deficiency)...................................... 149,540,933 (6,857,916)
-------------- --------------
Total liabilities and stockholders' equity (deficiency).................... $ 167,377,690 $ 7,977,506
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes.
F-13
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------
<S> <C> <C> <C>
1997 1996 1995
-------------- -------------- -------------
Revenues.......................................................... $ 2,524,311 $ 236,082 $ 56,149
Expenses:
Cost of sales................................................... 3,572,005 698,793 --
Selling, general and administrative............................. 6,303,041 2,070,345 3,886,568
Consulting and employment incentives............................ 19,218,591 3,652,101
Depreciation and amortization................................... 757,133 612,530 161,576
-------------- -------------- -------------
Loss from operations.............................................. (27,326,459) (6,797,687) (3,991,995)
Interest income................................................... 1,808,007 -- --
Interest expense (including financing costs)...................... (740,786) (3,561,010) (327,106)
-------------- -------------- -------------
Net loss.......................................................... (26,259,238) (10,358,697) (4,319,101)
-------------- -------------- -------------
-------------- -------------- -------------
Net loss per share-basic and diluted.............................. $ (.56) $ (0.29) $ (0.17)
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>
See accompanying notes.
F-14
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
-------------- -------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.......................................................... $ (26,259,238) $ (10,358,697) $ (4,319,101)
Adjustments to reconcile net loss to net cash (used in) provided
by operating activities:
Depreciation and amortization................................... 757,133 612,530 161,576
Stock, options and warrants issued for services................. 19,438,627 5,395,132 --
Changes in operating assets and liabilities:
Accounts receivable............................................. (655,838) 1,928 (182,718)
Accounts payable and accrued expenses........................... (12,354) 757,897 2,916,058
Advance payments received from customers........................ 10,386,932 832,690 275,034
Other........................................................... (1,467,609) 12,930 (141,666)
-------------- -------------- -------------
Net cash provided (used) in operating activities.............. 2,187,653 (2,745,590) (1,290,817)
-------------- -------------- -------------
Cash flows from investing activities:
Capital expenditures on fiber optic transmission network and
related equipment............................................... (19,205,912) (974,107) (3,709,928)
Deposit on fiber optic cable order................................ (86,771) -- --
Investment in/advance to joint venture............................ (56,015) -- --
Capital expenditures on property and equipment.................... (318,281) (95,356) (476,378)
-------------- -------------- -------------
Net cash used in investing activities......................... (19,666,979) (1,069,463) (4,186,306)
-------------- -------------- -------------
Cash flows from financing activities:
Proceeds from issuance of common stock.......................... 133,974,844 123,500 --
Proceeds from issuance of preferred stock and warrants.......... 32,500,000 2,025,000 --
Dividends paid on preferred stock............................... (76,562) -- --
(Repayments) proceeds from notes payable-private placement...... (1,408,000) 25,000 1,383,000
(Repayments) of notes payable................................... (5,950,000) (3,350,036) --
Proceeds from notes payable..................................... -- 5,450,000 3,850,036
Purchase of common stock........................................ (1,140,384) -- --
Purchase of preferred stock..................................... (2,038,438) -- --
-------------- -------------- -------------
Net cash provided by financing activities..................... 155,861,460 4,273,464 5,233,036
-------------- -------------- -------------
Net increase in cash and cash equivalents......................... 138,382,134 458,411 (244,087)
Cash and cash equivalents and beginning of period................. 464,324 5,913 250,000
-------------- -------------- -------------
Cash and cash equivalents and end of period....................... $ 138,846,458 $ 464,324 $ 5,913
-------------- -------------- -------------
-------------- -------------- -------------
Supplemental information: Interest paid........................... $ 1,145,416 $ 996,060 $ 67,149
-------------- -------------- -------------
-------------- -------------- -------------
Income taxes paid................................................. $ -- $ -- $ --
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>
See accompanying notes.
F-15
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIENCY) EQUITY
<TABLE>
<CAPTION>
CLASS A
SERIES A SERIES B COMMON
PREFERRED STOCK PREFERRED STOCK COMMON STOCK STOCK
-------------------- ------------------------ ----------------------- -----------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
--------- --------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994........... -- $ -- -- $ -- 24,336,000 $ 243,360 --
Issuance of common stock as an
inducement for entering into a loan
agreement............................ -- -- -- -- 623,976 6,240 --
Net loss for the year.................. -- -- -- -- -- -- --
--------- --------- ----------- ----------- ----------- ---------- -----------
Balance at December 31, 1995........... -- -- -- -- 24,959,976 249,600 --
Issuance of common stock in 1996 for
legal services rendered.............. -- -- -- -- 1,964,420 19,644 --
Issuance of common stock and warrants
in conjunction with sale of Senior
Subordinated Notes in 1996........... -- -- -- -- 1,524,348 15,244 --
Issuance of shares to holder of Senior
Subordinated Notes in exchange for
warrants............................. -- -- -- -- 912,600 9,126 --
Issuance of common stock in April 1996
to extend maturity of private
placement Subordinated Notes......... -- -- -- -- 237,436 2,374 --
Issuance of common stock in exchange
for management services.............. -- -- -- -- 6,084,000 60,840 --
Issuance of additional common stock to
the holder of the Senior Subordinated
Notes in connection with antidilution
provisions........................... -- -- -- -- 152,100 1,521 --
Issuance of common stock in April 1996
and July 1996 in connection with the
exercise of warrants................. -- -- -- -- 762,172 7,622 --
Issuance of common stock to related
electrical contractor in May 1996 as
payment for services................. -- -- -- -- 1,825,200 18,252 --
Issuance of common stock to majority
shareholder in May 1996 in exchange
for debt............................. -- -- -- -- 608,400 6,084 --
Sale of common stock and warrants in
June 1996............................ -- -- -- -- 152,100 1,521 --
Issuance of common stock in July 1996
in exchange for services rendered.... -- -- -- -- 48,672 486 --
Issuance of common stock for services
rendered............................. -- -- -- -- 730,080 7,300 --
Sale of common stock in September
1996................................. -- -- -- -- 43,736 437 --
<CAPTION>
CLASS B
COMMON STOCK ADDITIONAL
-------------------- PAID-IN ACCUMULATED
AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- --------- --------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994........... $ -- -- $ -- $ (203,360) $ (1,061,637) $ (1,021,637)
Issuance of common stock as an
inducement for entering into a loan
agreement............................ -- -- -- (1,240) -- 5,000
Net loss for the year.................. -- -- -- -- (4,319,101) (4,319,101)
--------- --------- --------- ------------- ------------ -------------
Balance at December 31, 1995........... -- -- -- (204,600) (5,380,738) (5,335,738)
Issuance of common stock in 1996 for
legal services rendered.............. -- -- -- 887,657 -- 907,301
Issuance of common stock and warrants
in conjunction with sale of Senior
Subordinated Notes in 1996........... -- -- -- 673,769 -- 689,013
Issuance of shares to holder of Senior
Subordinated Notes in exchange for
warrants............................. -- -- -- (9,126) -- --
Issuance of common stock in April 1996
to extend maturity of private
placement Subordinated Notes......... -- -- -- 104,948 -- 107,322
Issuance of common stock in exchange
for management services.............. -- -- -- 2,699,160 -- 2,760,000
Issuance of additional common stock to
the holder of the Senior Subordinated
Notes in connection with antidilution
provisions........................... -- -- -- (1,521) -- --
Issuance of common stock in April 1996
and July 1996 in connection with the
exercise of warrants................. -- -- -- (7,622) -- --
Issuance of common stock to related
electrical contractor in May 1996 as
payment for services................. -- -- -- 674,635 -- 692,887
Issuance of common stock to majority
shareholder in May 1996 in exchange
for debt............................. -- -- -- 593,916 -- 600,000
Sale of common stock and warrants in
June 1996............................ -- -- -- 98,479 -- 100,000
Issuance of common stock in July 1996
in exchange for services rendered.... -- -- -- 20,714 -- 21,200
Issuance of common stock for services
rendered............................. -- -- -- 327,500 -- 334,800
Sale of common stock in September
1996................................. -- -- -- 23,063 -- 23,500
</TABLE>
F-16
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIENCY) EQUITY
(CONTINUED)
<TABLE>
<CAPTION>
SERIES A SERIES B CLASS A
PREFERRED STOCK PREFERRED STOCK COMMON STOCK COMMON STOCK
-------------------- ---------------------- ------------------------ ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- --------- --------- ----------- ------------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of warrants for legal
services rendered (to purchase
608,400 shares at $0.015 per
share)............................ -- -- -- -- -- -- -- --
Issuance of warrants in connection
with debt issuance (to purchase
377,208 shares at $1.48 per
share)............................ -- -- -- -- -- -- -- --
Issuance of warrants in connection
with debt issuance (to purchase
762,172 shares at $.002 per
share)............................ -- -- -- -- -- -- -- --
Issuance of warrants in connection
with debt issuance (to purchase
428,312 shares at $2.00 per
share)............................ -- -- -- -- -- -- -- --
Sale of preferred stock with
warrants in December 1996......... 600,000 60,000 -- -- -- -- -- --
Net loss for the year............... -- -- -- -- -- -- -- --
--------- --------- --------- ----- ------------ ---------- ----------- ---------
Balance at December 31, 1996........ 600,000 60,000 -- -- 40,005,240 400,051 -- --
Issuance of common stock in
connection with the exercise of
warrants.......................... -- -- -- -- 608,400 6,084 -- --
Issuance of options to employees,
officers and directors (to
purchase 12,380,940 shares)....... -- -- -- -- -- -- -- --
Issuance of warrants in connection
with debt extension (to purchase
230,728 shares at $2.00 per
share)............................ -- -- -- -- -- -- -- --
Dividends on preferred stock........ -- -- -- -- -- -- -- --
Repurchase and retirement of Series
A preferred stock and warrants.... (600,000) (60,000) -- -- -- -- -- --
Repurchase and retirement of common
stock and warrants................ -- -- -- -- (2,353,880) (23,539) (68) --
Sales of Series B preferred stock... -- -- 8,403 84 -- -- -- --
Initial Public Offering............. -- -- -- -- -- -- 36,432,000 364,320
Conversion of Common Stock to Series
A Common Stock.................... -- -- -- -- (38,259,760) (382,596) 38,259,760 382,596
Conversion of Series B Preferred
Stock to Series A and B Common
Stock............................. -- -- (8,403) (84) -- -- 157,308 1,574
Issuance of common stock in
connection with the exercise of
warrants.......................... -- -- -- -- -- -- 47,568 476
Net loss for the year............... -- -- -- -- -- -- -- --
--------- --------- --------- ----- ------------ ---------- ----------- ---------
Balance at December 31, 1997........ -- $ -- -- $ -- -- $ -- 74,896,568 $ 748,966
<CAPTION>
CLASS B
COMMON STOCK ADDITIONAL
---------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------- --------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Issuance of warrants for legal
services rendered (to purchase
608,400 shares at $0.015 per
share)............................ -- -- 200,000 -- 200,000
Issuance of warrants in connection
with debt issuance (to purchase
377,208 shares at $1.48 per
share)............................ -- -- 13,640 -- 13,640
Issuance of warrants in connection
with debt issuance (to purchase
762,172 shares at $.002 per
share)............................ -- -- 250,550 -- 250,550
Issuance of warrants in connection
with debt issuance (to purchase
428,312 shares at $2.00 per
share)............................ -- -- 111,306 -- 111,306
Sale of preferred stock with
warrants in December 1996......... -- -- 1,965,000 -- 2,025,000
Net loss for the year............... -- -- -- (10,358,697) (10,358,697)
----------- --------- ------------- ------------- -------------
Balance at December 31, 1996........ -- -- 8,421,468 (15,739,435) (6,857,916)
Issuance of common stock in
connection with the exercise of
warrants.......................... -- -- 3,916 -- 10,000
Issuance of options to employees,
officers and directors (to
purchase 12,380,940 shares)....... -- -- 19,218,591 -- 19,218,591
Issuance of warrants in connection
with debt extension (to purchase
230,728 shares at $2.00 per
share)............................ -- -- 220,036 -- 220,036
Dividends on preferred stock........ -- -- (76,562) (76,562)
Repurchase and retirement of Series
A preferred stock and warrants.... -- -- (1,965,000) (13,438) (2,038,438)
Repurchase and retirement of common
stock and warrants................ -- -- 17,270 (1,134,115) (1,140,384)
Sales of Series B preferred stock... -- -- 32,499,916 -- 32,500,000
Initial Public Offering............. -- -- 133,514,303 -- 133,878,623
Conversion of Common Stock to Series
A Common Stock.................... -- -- -- -- --
Conversion of Series B Preferred
Stock to Series A and B Common
Stock............................. 16,884,636 168,846 (170,336) -- --
Issuance of common stock in
connection with the exercise of
warrants.......................... -- -- 85,745 -- 86,221
Net loss for the year............... -- -- -- (26,259,238) (26,259,238)
----------- --------- ------------- ------------- -------------
Balance at December 31, 1997........ 16,884,636 $ 168,846 $ 191,845,909 $ (43,222,788) $ 149,540,933
</TABLE>
See accompanying notes.
F-17
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS OPERATIONS AND LINE OF BUSINESS
Metromedia Fiber Network, Inc. (formerly National Fiber Network, Inc.) and
its subsidiaries (the "Company") was granted a nonexclusive right from the City
of New York, effective December 20, 1993, to provide telecommunication services
and construct a fiber optic network for the purpose of providing these services.
In October 1995, the basic backbone of the Fiber Optic Cable Network in the City
of New York was completed and the Company began servicing its customers.
The Company entered into a joint venture agreement with Racal
Telecommunications, Inc. ("Racal") on November 26, 1997. The joint venture will
enable the Company and Racal to provide broadband transatlantic communication
services, between New York and London, to their respective customers. Racal is
part of the Racal Electronics Group which is headquartered in the United
Kingdom.
The accompanying consolidated financial statements have been prepared on a
going concern basis which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. On April 30, 1997
the Company sold 8,403 shares of Series B preferred shares in exchange for
$32,500,000 in cash. Prior thereto, the Company had working capital deficiencies
and stockholders' deficiencies. Further, substantially all of its trade payables
and certain current liabilities were past due. These factors, prior to the April
1997 sale of preferred stock, raised substantial doubt about the Company's
ability to continue as a going concern.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and it subsidiaries. All intercompany balances and transactions have been
eliminated in consolidation. The investment in the Racal joint venture in which
the Company owns 50% is accounted for by the equity method. Certain balances
have been restated to conform to the current period presentation.
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 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.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated financial statements the Company considers
all highly liquid investments with an original maturity of three months or less
when purchased to be cash equivalents.
FIBER OPTIC TRANSMISSION NETWORK AND RELATED EQUIPMENT
The fiber optic transmission network and related equipment are stated at
cost. Costs in connection with the installation and expansion of the network are
capitalized. Depreciation is computed using the straight-line method through the
life of either the franchise agreement or right of way for the related network.
F-18
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
FRANCHISE COSTS
Amortization of franchise costs on the New York City Network began upon
commencement of service to customers and is computed on the straight-line method
through December 20, 2008 (159 months), the expiration date of the franchise
agreement.
ORGANIZATION COSTS
Costs incurred in connection with the organization of the company were
capitalized and are being amortized over five years on a straight-line basis.
LONG-LIVED ASSETS
The Company reviews for the impairment of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. No such impairment
indicators have been identified by the Company.
INCOME TAXES
The Company recognizes deferred tax liabilities and assets, if any, for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. Valuation
allowances are provided when the expected realization of tax assets does not
meet a more likely than not criterion.
RECAPITALIZATIONS
On February 17, 1995, the Company effected a 4,000-for-one stock split of
its outstanding shares of common stock. In April 1997, the Company increased its
authorized common stock of $.01 par value to 60,000,000 shares; in addition,
authorized preferred stock with a par value of $.01 was increased to 2,000,000
shares. On April 29, 1997, the Company effected a 3-for-one stock split of its
outstanding shares of common stock. In September 1997, the Company effected a
.507-for-1 reverse stock split of its common stock. On October 28, 1997, the
total authorized number of shares of common stock of the Company was increased
to 200 million shares, par value $0.01 per share, of which 180 million shares
were designated Class A common stock and 20 million shares were designated Class
B common stock.
On August 28, 1998, the Company completed a two-for-one stock split of the
Company's Class A and Class B common stock in the form of a 100 percent stock
dividend. On December 22, 1998, the Company completed a two-for-one stock split
of the Company's Class A and Class B common stock in the form of a 100% stock
dividend. The accompanying financial statements give retroactive effect to the
above recapitalizations.
F-19
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECOGNITION OF REVENUE
The Company recognizes revenue on telecommunications services ratably over
the term of the applicable agreements with customers. The Company also provides
installation services for its customers, and as these services typically are
completed within a year, the Company records the revenues and related costs for
these services under the completed contract method.
STOCK-BASED COMPENSATION
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." The Company applies APB Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations in
accounting for its stock options.
CONSULTING AND EMPLOYMENT INCENTIVES
The amounts represent the value of common stock, warrants and options issued
to consultants, officers, employees and directors of the Company as incentive to
provide services to the Company. The 1997 amounts represent the value of options
to purchase 12,380,940 shares of the Company's common stock issued in 1997 to
officers, employees and directors of the Company. The options have been valued
in accordance with APB Opinion No. 25 at the difference between the exercise
price of the options and the fair market value of the Company's common stock.
EARNINGS PER SHARE
The Company, as required, adopted SFAS No. 128, "Earnings Per Share," for
the year end 1997. All prior period earnings per share data have been restated.
Net loss per share computations are based upon the net loss attributable to
common shareholders divided by the weighted average number of shares of common
stock outstanding during the respective periods. The effect of stock options and
warrants, using the treasury stock method in computing diluted earnings per
share, is anti-dilutive.
RESTRICTED CASH
In 1997, the Company entered into agreements regarding the issuance of
long-term standby letters of credit with a financial institution whereby the
financial institution required the Company to maintain collateral in the form of
an interest-bearing cash balance with the financial institution in the full
amount of the standby letters of credit issued. The restricted cash is invested
in short-term time deposits of the issuing financial institution and the
interest earned on the time deposits is free of restriction and released to the
Company periodically.
DEFERRED REVENUES
Deferred revenue represents prepayments received from customers for future
use of the Company's fiber optic network as well as prepayment for installation
services which have not yet been provided. The Company derives revenues from
leasing dark fiber optic cable. Lease payments are structured as either
prepayments or monthly recurring charges. Prepayments are accounted for as
deferred revenues and recognized over the term of the respective customer lease
agreement. At December 31, 1997, the Company had received prepaid lease payments
totaling $11.5 million.
F-20
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. FIBER OPTIC TRANSMISSION NETWORK AND RELATED EQUIPMENT
Fiber optic transmission network and related equipment consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
<S> <C> <C>
1997 1996
------------- ------------
Material-fiber optic cable........................................................... $ 1,133,916 $ 719,067
Engineering and layout costs......................................................... 3,322,978 2,643,448
Fiber optic cable installation costs................................................. 1,869,119 1,205,041
Other................................................................................ 2,016,852 1,279,397
Construction in progress............................................................. 17,835,000 1,125,000
------------- ------------
26,177,865 6,971,953
Less: accumulated depreciation....................................................... (1,244,355) (603,300)
------------- ------------
$ 24,933,510 $ 6,368,653
------------- ------------
------------- ------------
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C> <C>
1997 1996 USEFUL LIFE
---------- ---------- -------------
Leasehold improvements.................................................... $ 537,962 $ 528,958 174 months
Furniture, equipment and software......................................... 352,056 42,776 5 years
---------- ----------
890,018 571,734
Less accumulated depreciation and amortization............................ (131,004) (46,466)
---------- ----------
$ 759,014 $ 525,268
---------- ----------
---------- ----------
</TABLE>
4. INVESTMENT IN/ADVANCES TO JOINT VENTURE
On November 26, 1997, the Company entered into a joint venture agreement
with Racal, to provide broad-based transatlantic communication services between
New York and London. The Company and Racal will each be required to contribute
capital of $3,400,000 through October 1, 1998 for their respective 50%
interests. As of December 31, 1997, neither party had yet made a capital
contribution. The balance of the investment at December 31, 1997 represents
advances made to the joint venture by the Company.
5. RELATED PARTY TRANSACTIONS
Prior to 1996, the Company engaged the services of an electrical contractor
controlled by the person who was then the Company's majority shareholder. During
1995, the Company incurred charges for labor and materials of $692,887. As of
December 31, 1995, $692,887 was owed to this related company. In May 1996, the
Company and the assignee of this related party entered into an agreement whereby
the full amount of this indebtedness was satisfied by the issuance of 1,825,200
shares of the Company's common stock. The value of the stock was based upon the
invoices rendered for services performed based upon negotiations between the
Company and the electrical contractor.
The person who was then the Company's majority shareholder made loans to the
Company which at December 31, 1994 totaled $1,967,109. In April 1995, such
shareholder of the Company agreed to contribute to the Company's capital $1.7
million of amounts due to him. By agreement between the
F-21
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. RELATED PARTY TRANSACTIONS (CONTINUED)
Company and such shareholder in May 1996 the transaction was rescinded. During
1995, the Company made repayments (net of additional advances) of $1,070,130. As
of December 31, 1995, the Company owed such shareholder $896,979. Pursuant to an
agreement dated May 21, 1996, the Company issued 608,400 shares of its common
stock to such shareholder in consideration for the cancellation of $600,000 of
the outstanding balance. In 1997, the remaining balance of the note was repaid
in full.
In March and June 1997, the Company entered into two one-year leases for
office space with an affiliate. Subsequent to June 1997, the affiliate sold this
property. For the year ended December 31, 1997 office rent expenses for these
leases amounted to approximately $110,000.
6. NOTES PAYABLE
Notes payable consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
<S> <C> <C> <C>
1997 1996
--------- ------------
U.S. One Communications............................................................... a) $ -- $ 4,900,000
Convertible Subordinated Notes........................................................ b) -- 858,000
Sterling Capital Bridge Loan.......................................................... c) -- 550,000
Subordinated Notes.................................................................... d) -- 550,000
AT&T Wireless......................................................................... e) -- 500,000
Senior Subordinated Notes............................................................. f) -- --
--------- ------------
$ -- $ 7,358,000
--------- ------------
--------- ------------
</TABLE>
A. On April 16, 1996, the Company entered into an agreement with U.S. One
Communications ("U.S. One") for the exclusive usage rights for fibers on the
Company's fiber optic transmission network. The initial term of the agreement
was for a period beginning April 1996 and expiring December 2008. The agreement
was renewable, at the option of U.S. One, for an extended term of 13 years
expiring December 2021. In connection with this agreement, the Company borrowed
$4,900,000 from U.S. One, of which $3,227,867 was immediately used to repay all
notes payable to Tomen America.
On April 30, 1997 the Company amended this agreement which allows U.S. One
to have the exclusive right to use 888 fiber miles of the network. Additionally,
pursuant to the amended agreement, U.S. One received an option to acquire from
the Company up to 1,620 additional fiber miles upon payment of a predetermined
amount. In accordance with the amended agreement the following occurred: (i) all
interest accrued from the inception of the loan to the closing date of the
agreement was waived by U.S. One, and (ii) the $4,900,000 principal balance of
the loan was offset against the $3,530,000 scheduled payment due from U.S. One
to the Company under the amended lease agreement, and (iii) the Company paid to
U.S. One the difference of $1,370,000.
In connection with the execution of the aforementioned lease and financing
agreements, the Company granted U.S. One a warrant to purchase common stock of
the Company. The warrant is exercisable for a number of shares of Class A common
stock to be determined at the Company's discretion subject to a minimum number
of 304,200 shares and maximum number of 1,825,200 shares. The per share exercise
price is to be determined pursuant to a formula, but in no event shall the
aggregate purchase price exceed $1,250,000.
F-22
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. NOTES PAYABLE (CONTINUED)
B.In October 1995, the Company initiated a private offering of $858,000 of
convertible subordinated notes. Through December 31, 1995, $783,000 of notes
were sold pursuant to this offering, and an additional $75,000 of notes were
sold during January and February of 1996. These notes were scheduled to mature
during the period October 1996 through February 1997 and bore interest at an
annual rate of 15%, payable at maturity. The notes were convertible, at the
Company's option, into shares of common stock. Concurrent with the issuance of
these notes, warrants were issued by the Company to the noteholders to purchase
522,008 shares of common stock at $2.00 per share through November 2000. In
1997, the Company repaid the outstanding balance of these notes plus all accrued
interest.
In December 1996, the Company offered the noteholders warrants to purchase
428,312 shares of its common stock exercisable at $2.00 per share through
November 2000 in exchange for the extension of the due dates on the notes. All
of the noteholders accepted this offer and accordingly, the Company recorded a
non cash charge of $111,306. As of December 31, 1997, 15,212 of such warrants
have been exercised.
In March 1997, in consideration for the extension of the due dates of the
notes, the Company issued warrants to the noteholders to purchase an aggregate
of 230,728 shares of common stock, exercisable at $2.00 per share through
November 2000. The Company recorded a non-cash charge of $220,036 for such
issuance. As of December 31, 1997, 7,606 of such warrants have been exercised.
C. On September 24, 1996, the Company entered into a loan agreement with
Sterling Capital ("Sterling") for $550,000. The loan bore interest at 10% per
annum and matured on March 1, 1997. The loan was secured by all of the Company's
assets. As an incentive for the loan, the Company issued to Sterling warrants to
purchase 377,208 shares of common stock at an exercise price of $1.48. The
warrants are exercisable through September 1999. On May 1, 1997 the company
repaid the loan in full and all accrued interest. As of December 31, 1997,
17,144 of the warrants have been exercised.
D. In August 1995, the Company initiated a $600,000 private offering of
subordinated notes. These notes were scheduled to mature in March 1996 and bore
interest at an annual rate of 15%, payable quarterly in arrears. Concurrent with
the issuance of these notes, warrants were issued by the Company to the
noteholders which were exercisable for common shares of the Company in an amount
equal to 0.7% of the outstanding shares of common stock immediately following an
initial public offering of the Company's common stock, at an exercise price
equal to 60% of the initial public offering price. These warrants are
exercisable over a three-year period beginning on the effective date of such
initial public offering. In April 1996, the Company offered the warrantholders
shares of common stock equal to 0.7% of the common stock then issued and
outstanding, in exchange for the surrender and cancellation of the outstanding
warrants, and in consideration for the extension of the maturity date of the
notes through June 30, 1996. All of the warrantholders accepted this offer and,
accordingly, the Company issued a total of 237,436 shares of the Company's
common stock. The Company recorded a noncash charge of $107,322 in connection
with such issuance. In 1996, the Company repaid $50,000 of this debt. In 1997,
the Company repaid the outstanding balance of these notes plus all accrued
interest.
E. On April 18, 1995, the Company entered into a loan agreement, which was
subsequently amended, with AT&T Wireless for $500,000 bearing interest at 11%
per annum. In July 1997 the note was repaid in full. In 1995, the Company issued
to AT&T Wireless a warrant entitling the holder to purchase a total of 2,676,668
shares of the Company's common stock.
F-23
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. NOTES PAYABLE (CONTINUED)
This warrant, was canceled and replaced by a new warrant issued on February
13, 1997, to purchase 1,825,200 shares of the Company's common stock at $1.21
per share. The new warrant expires on February 13, 2000.
F. On February 13, 1996, the Company entered into an investment agreement
with an individual (the "Investor") pursuant to which the company borrowed
$1,000,000 in consideration for the issuance of 12% senior subordinated
promissory notes maturing on November 1, 1996. The notes were guaranteed
personally by the Company's president. The notes were convertible at a price of
$.66 per unit for each $1,000 of principal outstanding. Each unit consisted of
the following: (i) one share of common stock, and (ii) one warrant to purchase
one share of common stock at $1.32 per share. As an inducement for entering into
the investment agreement, the Company issued to the Investor the following: (i)
1,524,348 shares of common stock, and (ii) a warrant to purchase 1,524,348
shares of common stock at $1.32 per share, exercisable through August 15, 2002.
The Company recorded noncash charges of $689,013 for such issuances.
On March 19, 1996, a supplemental investment agreement was executed with the
Investor providing for an additional advance of $500,000 with the same maturity
date, interest rate, conversion rights, and guaranty features as the initial
$1,000,000 investment. This advance was subsequently repaid, along with interest
on April 16, 1996. In connection with this supplemental agreement, the Company
issued a warrant to purchase 762,172 shares of common stock at $1.32 per share,
exercisable through August 15, 2002. The Company also issued a warrant to
purchase an additional 762,172 shares of Class A common stock at $0.002 per
share exercisable through August 15, 2002. The Company recorded a noncash charge
of $250,550 for such issuance.
On April 11, 1996, a memorandum of understanding was entered into between
the parties pursuant to which the warrants issued on February 13, 1996 to
purchase 1,524,348 shares at $1.32 per share and the warrants issued on March
19, 1996, to purchase 762,172 shares at $1.32 per share were surrendered by the
Investor to the Company in consideration for the issuance of 456,300 shares of
the Company's common stock.
In April and July 1996, the Investor purchased 608,400 and 153,772 shares of
common stock, respectively, at $0.002 per share in connection with the exercise
of all warrants held by the Investor. Further, in accordance with the investment
agreement an additional 152,100 shares of common stock was issued to the
Investor in compliance with the anti-dilutive requirements in the agreement.
7. SETTLEMENT AGREEMENTS
In February 1996, the Company entered into a settlement agreement with a
former officer regarding the termination of his employment. This agreement
provided for the Company to make payments to the officer totaling $1,003,000,
including interest. The former officer's services effectively terminated prior
to December 31, 1995. Accordingly, as of December 31, 1995, the Company recorded
$876,146 as a liability in accordance with the terms of the settlement
agreement.
The settlement agreement also reaffirmed the option previously issued to
this former officer on May 1, 1995, which entitles the holder to purchase
831,532 shares of the Company's common stock at $0.002 per share through
February 1, 1999. In 1997 the Company repurchased and retired the warrant.
On November 14, 1996, the Company amended the above referenced settlement
agreement with the former officer, whereby a consultant to the Company agreed to
purchase common stock of the
F-24
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SETTLEMENT AGREEMENTS (CONTINUED)
company from the former officer and certain of his affiliates in exchange for
$640,000 and the complete satisfaction of the aforementioned liability.
On February 11, 1997, the Company entered into an agreement with a
consultant/director. Pursuant to the agreement the Company agreed to pay the
consultant/director a fee of $250,000 in full and complete payment for all
services provided to the Company by the consultant/director and for any fees or
compensation due to the consultant/director resulting from any prior agreements
with the Company, and the consultant/director agreed to release the Company from
any claims against the Company.
8. EQUITY TRANSACTIONS
STOCK ISSUED TO LEGAL COUNSEL
On January 12, 1996, the Company entered into an agreement with its legal
counsel which calls for the issuance by the Company of common stock as
additional consideration for legal services provided. Pursuant to this
agreement, as amended, the Company issued a total of 1,964,420 shares of its
common stock. Management has estimated the value of the 1,964,420 shares issued
to be $907,301 and has recorded a noncash charge in connection with such
issuance.
PREFERRED STOCK
On April 30, 1997, the Company sold an aggregate of 8,403.325 shares of
Series B convertible preferred stock, par value $0.01 per share (the "Series B
preferred stock"), to Metromedia Company and affiliates ("Metromedia") for an
aggregate purchase price of $32.5 million (the "Metromedia Investment"). Each
share of the Series B preferred stock was convertible into 1,014 shares of the
Company's common stock. On October 28, 1997, the Series B convertible preferred
shares were converted into 17,041,944 shares of Class B common stock. Further,
on October 28, 1997, a total of 157,308 shares of Class B common stock
outstanding were converted into an equivalent number of shares of Class A common
stock.
A portion of the proceeds from the Metromedia Investment was used to repay
the Metromedia Loan, discussed below, and accrued interest thereon ($4,058,127),
repay other short-term indebtedness ($3,485,000), and redeem (for $2,115,000)
all of the outstanding shares of the Company's preferred stock (the "Series A
preferred stock") and related warrants.
Through April 30, 1997, Metromedia loaned the Company an aggregate of
$4,000,000 (the "Metromedia Loan"). A portion of the proceeds from the
Metromedia Loan was used to purchase 2,353,880 shares of the Company's common
stock and warrants to purchase 831,532 shares of its common stock at December
31, 1997.
No shares of the Company's Series A preferred stock or Series B preferred
stock remained outstanding at December 31, 1997. Both the Series A and Series B
preferred stock of the Company have been eliminated pursuant to actions by the
Board of Directors.
F-25
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. EQUITY TRANSACTIONS (CONTINUED)
COMMON STOCK
On November 3, 1997, the Company completed the initial public offering ("the
"IPO") of 36,432,000 shares of its Class A common stock, at an offering price of
$4 per share. The net proceeds to the Company from the IPO, after deducting
expenses of the IPO, were approximately $133.9 million.
In addition, on October 28, 1997, a total of 38,259,760 shares of the common
stock of the Company owned by stockholders prior to the IPO were exchanged for
an equal number of shares of Class A common stock. The Company also reserved for
issuance 17,041,944 shares of Class A common stock for conversion of the Class B
common stock.
On October 28, 1996, a shareholder granted to the Company's Chairman of the
Board an option to purchase 1,599,556 shares of common stock of the company for
an aggregate exercise price of $500,000. By letter dated December 3, 1996, the
option was amended to reduce the number of option shares to 1,295,356 shares.
The option was thereafter assigned by the Chairman to the Company. On February
11, 1997, the Company exercised the option by payment of $500,000.
On April 15, 1996, the Company entered into a stock purchase agreement with
Vento & Company of New York, LLC ("VCNY"). Pursuant to this agreement, the
Company issued 6,084,000 shares of common stock to VCNY as consideration for
services provided by VCNY. The Company estimated the value of the stock issued
approximated $2,760,000.
Concurrent with the execution of the aforementioned stock purchase
agreement, the parties entered into a consulting agreement. The term of the
agreement was from April 15, 1996 to April 15, 2001. Under the terms of the
agreement, VCNY was to provide guidance and advice with respect to the
management of the day-to-day operations of the Company's fiber optic
transmission network. In consideration for such services, the Company reimbursed
VCNY for all reasonable personnel and travel costs incurred by VCNY with respect
to the performance of these services. On October 9, 1996, the Company entered
into a settlement agreement with the Company's former chief executive officer
and VCNY regarding the termination of such officer's employment and services
provided by VCNY. The agreement provided for VCNY to deliver a total of
6,084,000 shares of common stock in exchange for payments made by the Company.
The payments were not made and the sale of the shares and the Company's
obligation to buy the shares was deemed null and void.
In September 1996, the Company sold 43,736 shares of common stock to three
individuals for total proceeds of $23,500.
In August 1996, the Company issued 730,080 shares of common stock for
consulting services. The Company has recorded a noncash charge of $334,800 for
such issuance.
In July 1996, the Company issued 48,672 shares of common stock as
consideration for consulting services. The Company recorded a noncash charge of
$21,200 for such issuance. In addition, the Company issued 602,316 shares to
three employees for services rendered. The transaction was later rescinded and
the shares were returned to the Company.
In June 1996, the Company sold a total of 152,100 shares of common stock to
two individuals for total proceeds of $100,000. Concurrent with the issuance of
these shares, warrants were issued by the Company to these shareholders
entitling the holders to purchase a total of 152,100 shares at $0.66 per share
for a three-year period.
F-26
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. EQUITY TRANSACTIONS (CONTINUED)
STOCK WARRANTS
In 1997, 1996 and 1995 in connection with the issuance of notes and the
extension of their due dates the Company issued warrants to the noteholders to
purchase 659,040 shares of common stock at $2.00 per share through November
2000; see Note 6.
As of December 31, 1997, the Company has reserved approximately 4,704,792
shares of its common stock for exercise of warrants and contingent warrants.
On December 31, 1996, the Company issued and sold to Penny Lane Partners,
L.P. ("Penny Lane") for aggregate cash consideration of $2,025,000 (i) 600,000
shares of 10% cumulative convertible preferred stock (the "Series A Preferred
Stock") bearing dividends at a rate of $0.34 per share per annum, (ii) warrants
to purchase 456,300 shares of Common Stock at an exercise price of $1.24 per
share of Common Stock (such number to be determined based on certain future
events) at an exercise price of $0.01 per share (the "Contingent Warrants"). In
March 1997, Penny Lane agreed to permit the Series A Preferred Stock and the
Contingent Warrants to be redeemed at an aggregate redemption price of
$2,115,000 (which includes accrued but unpaid dividends on the Series A
Preferred Stock) and in connection therewith the number of Penny Lane Warrants
was increased from 456,300 to 912,600.
In September 1996, the Company granted 377,208 common stock purchase
warrants to Sterling at an exercise price of the lesser of $1.48 per share, the
price at which the Company shall issue its securities in the future less $1.48,
or one half the price at which the common stock of the Company is offered in an
initial public offering, exercisable on the later date of September 24, 1999 or
twelve months and 90 days after the date the warrant shares have been covered by
a registration statement. The Company has recorded a noncash charge of $13,640
for such issuance.
In June 1996, the Company granted 608,400 common stock purchase warrants to
the Company's legal counsel exercisable at $0.02 per share for a period of four
years as additional consideration for legal services provided. The Company has
recorded a noncash charge of $200,000 for such issuance.
STOCK OPTIONS
In 1997, the Company granted to certain officers, employees and directors
options to purchase up to 12,380,940 shares of its Common Stock. The options
have exercise prices between $0.49 and $1.91 per share and expire in 2007. The
Company has recorded a noncash charge of $19,218,591 for such issuance.
On October 28, 1997, the Stockholders of the Company approved the Metromedia
Fiber Network, Inc. 1997 Incentive Stock Plan ("Option Plan"). The Option Plan
authorized the award of up to 4,000,000 options to acquire Class A Common Stock
of the Corporation to directors, officers and employees of the Company and
others who are deemed to provide substantial and important services to the
Company. Options to purchase 2,450,000 shares of the Company's common stock were
granted at an exercise price of $4.00 per share, the market price at the date of
grant.
The Compensation Committee of the Board of Directors is responsible for
determining the type of award, when and to whom awards are granted, the number
of shares and terms of the awards and the exercise price. The options are
exercisable for a period not to exceed ten years from the date of the grant.
Vesting periods range from immediate vesting to four years.
F-27
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. EQUITY TRANSACTIONS (CONTINUED)
The following table summarizes the stock option transactions for the year
ended December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
------------ -----------------
<S> <C> <C>
Granted....................................................... 14,830,940 $ 1.09
Balance outstanding at December 31, 1997...................... 14,830,940 $ 1.09
Exercisable at December 31, 1997.............................. 12,241,172
</TABLE>
Pro forma information regarding net income and earnings per share is
required by Statement of Financial Standards No. 123, "Accounting for
Stock-Based Compensation" ("SAF 123"), and has been determined as if the Company
had accounted for its employees' stock options under the fair value method
provided by that Statement. The fair value of the options was estimated at the
date of grant using the Black-Scholes option pricing model with the following
assumptions for vested and non-vested options:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
<S> <C>
Assumption
Risk-free interest yield................................................... 5.73-6.56%
Volatility factor.......................................................... .369
Dividend yield............................................................. --
Average life............................................................... 5 years
</TABLE>
The Black-Scholes options valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock has characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's option, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purpose of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the options. The
Company's pro forma information is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
--------------
<S> <C>
Pro forma net loss applicable to common stock................................. $ (28,043,370)
Pro forma loss per share applicable to common stock basic and diluted......... $ (0.59)
</TABLE>
The weighted average fair value of options granted during the year ended
December 31, 1997 is $1.97. The weighted average remaining contractual life of
options outstanding at December 31, 1997 is 9.4 years.
9. INCOME TAXES
There was no provision for federal or state income taxes for the years ended
December 31, 1997, 1996 and 1995. At December 31, 1997, the Company expects to
have available approximately
F-28
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
$16,000,000 of net operating loss carryforwards, expiring in the years 2009
through 2012. The Company has recorded a full valuation allowance against the
deferred tax asset as its realization is uncertain.
10. RECONCILIATION OF EARNINGS PER SHARE:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
<S> <C> <C> <C>
1997 1996 1995
-------------- -------------- -------------
BASIC AND DILUTED EPS
Net loss.......................................................... $ (26,259,238) $ (10,358,697) $ (4,319,101)
Deduct dividend on preferred shares............................... 76,562 -- --
-------------- -------------- -------------
Net loss applicable to common stock............................... $ (26,335,800) $ (10,358,697) $ (4,319,101)
-------------- -------------- -------------
-------------- -------------- -------------
SHARES
Weighted average number of common shares outstanding.............. 47,446,912 35,858,252 24,828,940
-------------- -------------- -------------
Net loss per common share basic and diluted....................... $ (0.56) $ (0.29) $ (0.17)
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
A. The Company entered into a franchise agreement with the City of New York
on December 20, 1993, whereby the company was granted a nonexclusive franchise
to install, operate, repair, maintain and replace cable, wire, fiber or other
transmission medium and the related equipment and facilities on, over and under
the property of the City of New York. In exchange, the company is obligated to
pay franchise fees commencing on the completion date of the initial backbone of
the fiber optic cable network through December 20, 2008. In connection with the
agreement, among other requirements, the Company maintains a performance bond in
the amount of approximately $1,750,000 and has provided the City with a $500,000
letter of credit as a security fund.
Franchise fees are based on a percentage of the Company's gross sales: 10%
for the first and second years, 6% for the third year and 5% for the fourth and
each year thereafter. However, during each year of the term, the franchise fee
shall be no less than $200,000.
Franchise fees charged to operations in connection with this agreement
amounted to $200,000 for the years ended December 31, 1997, 1996, and 1995.
B. The Company entered into a license agreement with Jersey City, New Jersey
on July 10, 1995, whereby the Company was granted a license to construct a
fiber-optic system within Jersey City. The term of this agreement continues
until written notice of termination is given by either party.
C. The Company entered into a conduit occupancy agreement with Bell
Atlantic, formerly known as The New York Telephone Company, in 1993, whereby the
Company was granted a right to place and maintain cable facilities in the
conduit system of Bell Atlantic. The term of this agreement is for one year from
the date of the agreement and thereafter until three months after written notice
of termination is given by either party.
The Company also has the right to place and maintain cable facilities in the
conduit system of Empire City Subway Company, Ltd., by virtue of the franchise
agreement with the City of New York.
F-29
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Occupancy fees charged to operations in connection with this agreement were
approximately $120,000 and $152,000 for the years ending December 31, 1997 and
1996, respectively.
D. The Company leases several office facilities under operating leases which
expire at various times through March 31, 2010.
Rent expense charged to operations was approximately $268,000, $158,000 and
$148,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
E. On June 1, 1995, the Company entered into two lease agreements with the
Port Authority of New York and New Jersey, whereby the Company was granted a
nonexclusive right to lease two ducts in the North and South tubes of the
Holland Tunnel to install, maintain, operate and provide telecommunications
equipment for its customers. The term of these agreements is for ten years
through June 1, 2005.
Lease expense charged to operations in connection with these leases was
approximately $112,000, $107,000 and $63,000 for the years ending December 31,
1997, 1996 and 1995, respectively.
F. On August 11, 1995, the Company entered into a service agreement with an
unrelated party, for the maintenance of the Company's telecommunications
equipment located in Jersey City. The term of this agreement is for one year
with an option to renew this agreement annually for up to five consecutive one
year renewal terms. Service fees charge to operations in connections with this
agreement was approximately $24,000 in 1997.
G. On November 17, 1997 the Company entered into an agreement with a
telecommunication company (the "Seller") to purchase conduit and associated
improvements (the "Conduit System") within a multiple conduit system being
constructed by the Seller, in the counties of Philadelphia and Montgomery,
Pennsylvania.
The purchase price for the conduit system is $546,940 which is payable in
installments. Upon the acceptance of the multiple Conduit System by the Company
the Seller will grant, bargain, sell, assign, transfer, convey and set over all
right, title, and interest in the Conduit System.
H. On December 1, 1997, the Company entered into an Agreement which provides
the Company with the right-of-way to construct, install, operate and maintain
two innerducts containing fiber optic cable in a tunnel which connects New York
City and Secaucus, New Jersey.
The initial term of this agreement is for five years with an option to renew
and extend the agreement for five consecutive renewal terms of five years. The
annual rental fee is $151,199 for the first contract year. On each anniversary
of the effective date the annual rental fee shall be adjusted to reflect the
increases in the CPI of the previous year.
I. On December 5, 1997 the Company entered into an agreement with a utility
company to purchase conduit (existing and future) for the installation of fiber
optic cable used exclusively to provide telecommunication services in the city
of Chicago. The purchase price for the existing conduit is $1.3 million, of
which $130,000 was paid in December 1997 with the remainder payable during the
first quarter of 1998.
F-30
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
J. Approximate minimum annual franchise, license, lease and service fees and
conduit payments under the aforementioned agreement are as follows:
<TABLE>
<S> <C>
For the year ended December 31:
1998........................................................... $3,095,604
1999........................................................... 1,612,782
2000........................................................... 1,614,689
2001........................................................... 1,601,907
2002........................................................... 1,597,535
Thereafter..................................................... 5,374,572
----------
$14,897,089
----------
----------
</TABLE>
K. In February 1997, a former investment advisor to the Company asserted a
claim against the Company in the amount of $305,731 pursuant to an agreement
made on June 27, 1995, for the payment of certain fees and expenses. In
September 1997, the Company paid the former investment advisor $250,000 in full
settlement of such claim plus any and all related expenses.
L. On or about April 18, 1997, Howard Katz, Realprop Capital Corporation and
Evelyn Katz commenced an action against, among others, the Company, Stephen A.
Garofalo, Peter Sahagen and Peter Silverman in the United States District Court
for the Southern District Court of New York captioned Katz, et al. v. National
Fiber Network, Inc., et al., No. 97 Civ. 2764 (JGK) (the "Katz Litigation"). On
May 28, 1997, the plaintiffs filed an amended complaint and on September 15,
1997, the plaintiffs filed a second amended complaint. The complaint as amended
alleges causes of action for, among other things, common law fraud, violations
of section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder, breach of fiduciary duty and negligent misrepresentation
for alleged misrepresentations and omissions made in connection with the
repurchase of a right to purchase an aggregate of 1,058,524 shares of Class A
common stock of the Company, which class of shares was authorized in October
1997, and an option to purchase warrants for the purchase of 831,552 shares of
Class A common stock. The amended complaint also contains allegations of
corporate waste against the Company and Stephen A. Garofalo. Plaintiffs seek,
among other things, compensatory damages of not less than $12 million, punitive
damages in the amount of $100 million and, in the alternative, rescission of the
purchase of the common stock and warrants by the Company. On October 31, 1997,
all defendants moved to dismiss the amended complaint. The motions were fully
briefed as of December 12, 1997. The Company intends to vigorously defend itself
against these allegations based on its belief that the Company acted
appropriately in connection with the matters at issue in this litigation. No
assurance can be made, though, that the Company will not determine that the
advantages of entering into a settlement outweigh the risk and expense of
protracted litigation or that ultimately the Company will be successful in its
defense of the allegations. If the Company is unsuccessful in its defense of the
allegations, an award of the magnitude being sought by the plaintiffs in the
Katz Litigation would have a material adverse effect on the Company's financial
condition or results of operations.
M. On or about October 20, 1997, Vento & Company of New York, LLC ("VCNY")
commenced an action against the Company, Stephen A. Garofalo, Peter Silverman,
the law firm of Silverman, Collura, Chernis & Balzano, P.C., Peter Sahagen,
Sahagen Consulting Group of Florida (collectively, the "Sahagen Defendants") and
Robert Kramer, Birdie Capital Corp, Lawrence Black, Sterling Capital
F-31
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
LLC, Penrush Limited, Needham Capital Group, Arthur Asch, Michael Asch and
Ronald Kuzon (the "Kramer Defendants") in the United States District Court for
the Southern District of New York (No. 97 CIV 7751) (the "VCNY Litigation"). The
complaint alleges causes of action for, among other things, violation of Section
10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder, fraud and fraudulent concealment, breach of fiduciary duty and
negligent misrepresentation and omission made in connection with the sale by
VCNY of 2,737,800 shares of Class A common stock to Peter Sahagen and the Kramer
Defendants on January 13, 1997 (the "VCNY Sale"). The complaint also alleges a
cause of action for declaratory judgment asserting that certain "piggyback"
registration rights are applicable to shares of the Company's Class A common
stock which VCNY owns (or which may be rescinded to VCNY pursuant to its
requested remedies). The complaint further requests a declaratory judgement that
a stockholders' agreement between the Company, Stephen A. Garofalo and VCNY be
declared operative, which agreement indirectly required VCNY, through designated
directors, to approve significant transactions, and, accordingly, the Metromedia
Loan and the Metromedia Investment should be rescinded and Mr. Vento should be
reappointed as Chief Executive Officer of the Company. The Company believes,
among other things, that the stockholder's agreement to which Mr. Vento was a
party had terminated and, as a result, Mr. Vento had no such rights to approve
the Metromedia Investment or the Metromedia Loan or to remain as Chief Executive
Officer of the Company. Plaintiff seeks, among other things, (i) rescission of
the VCNY Sale, or alternatively, damages in an amount not presently
ascertainable, but believed to be in the excess of $36 million, together with
interest thereon, (ii) punitive damages in the amount of $50 million, and (iii)
the declaratory judgements discussed above. The Company intends to vigorously
defend itself against these allegations based on its belief that it acted
appropriately in connection with the matters at issue in this litigation.
However, no assurance can be made that the Company will not determine that the
advantages of entering into a settlement outweigh the risk and expense of
protracted litigation or that ultimately the Company will be successful in its
defense of the allegations. If the Company is unsuccessful in its defense of the
allegations, an award of the magnitude being sought by the plaintiffs in the
VCNY Litigation would have a material adverse effect on the Company's financial
condition or results of operations.
F-32
<PAGE>
APPENDIX A
GLOSSARY
<TABLE>
<S> <C>
Access Charge................... The fees paid by long distance carriers to LECs for
originating and terminating long distance calls on the
LECs' local networks.
Analog Transmission............. A way of sending voice, video and data signals
electronically in which the transmitted signal is
analogous to the original signal.
ATM (Asynchronous Transfer
Mode)......................... An information transfer standard that is one of a general
class of packet technologies that relay traffic by way of
an address contained within the first five bytes of a
standard fifty-three-byte-long packet or cell. The ATM
format can be used by many different information systems,
including local area networks to deliver traffic at
varying rates, permitting a mix of voice, data and video
(multimedia).
Backbone........................ The backbone is the part of the telecommunications network
which carries the most traffic. It is the through-portion
of a transmission network, as opposed to spurs which
branch off the through-potions.
Bandwidth....................... The range of analog frequencies or digital signals that
can be passed through a transmission medium, such as fiber
optic cable. The greater the bandwidth, the greater the
information carrying capacity. Bandwidth is measured in
Hertz (analog) or Bits Per Second (digital).
Bit............................. A contraction of the term Binary Digit, it is the basic
unit in data communications. Bits are typically
represented by ones or zeros.
Capacity........................ The information carrying ability of a telecommunications
facility.
Central Office.................. Telephone company facility where subscribers' lines are
joined to switching equipment for connecting other
subscribers to each other, locally and long distance.
Channel......................... A path of communication either electrical or
electromagnetic, between two or more points. Also called a
circuit, facility, line, link, or path.
CLEC (Competitive Local Exchange
Carrier)...................... A company that competes with local exchange carriers in
the local services market.
Coaxial Cable................... A cable composed of an insulated central conducting wire
wrapped in another cylindrical conducting wire. It is
typically used to carry high-speed data.
Collocation..................... Collocation refers to the physical location of a
telecommunication carrier's switch in the ILECs premises
to facilitate the interconnection of their respective
switching equipment.
</TABLE>
A-1
<PAGE>
<TABLE>
<S> <C>
Common Carrier.................. A government defined group of private companies offering
telecommunications services or facilities to the general
public on a non-discriminatory basis.
Conduit......................... A pipe, usually made of metal, ceramic or plastic, that
protects buried cables.
Dark Fiber...................... Fiber optic cable without any of the electronic or
optronic equipment necessary to use the fiber for
transmission.
Digital......................... Describes a method of storing, processing and transmitting
information through the use of distinct electronic or
optical pulses that represent the binary digits 0 and 1.
Digital transmission/switching technologies employ a
sequence of discrete, distinct pulses to represent
information, as opposed to the continuously variable
analog signal.
DS-3............................ DS is the standard telecommunications industry designation
of a hierarchy of digital signal speeds used to classify
capacities of lines and trunks. DS-3 service has a bit
rate of approximately 45 megabits per second and can
transmit roughly 672 simultaneous voice conversations.
FCC (Federal Communications
Commission)................... Regulatory body established pursuant to the Communications
Act of 1934; it has the authority to regulate all
interstate communications originating in the United
States.
Fiber Miles..................... The number of strands of fiber in a length of fiber optic
cable multiplied by the length of the cable in miles.
Fiber Optics.................... A technology in which light is used to transport
information from one point to another. Fiber optic cables
are thin filaments of glass through which light beams are
transmitted over long distances carrying enormous amounts
of data. Modulating light on thin strands of glass
produces major benefits in high-bandwidth, relatively low
cost, low power consumption, small space needs, total
insensitivity to electromagnetic interference and great
insensitivity to being bugged.
Frame Relay..................... A high-speed, data-packet switching service used to
transmit data between computers. Frame Relay supports data
units of variable lengths at access speeds ranging from 56
kilobits per second to 1.5 megabits per second. This
service is well-suited for connecting local area networks,
but is not presently well-suited for voice and video
applications due to the variable delays which can occur.
Frame Relay was designed to operate at high speeds on
modern fiber optic networks.
ILEC (Incumbent Local Exchange
Carrier)...................... A company historically providing local telephone service.
Often refers to one of the Regional Bell Operating
Companies (RBOCs). Often referred to as "LEC" (Local
Exchange Carrier).
ISP (Internet Service
Provider)..................... A vendor who provides direct access to the Internet. The
ISP also usually provides a core group of Internet
utilities and services like E-mail and News Group Readers.
</TABLE>
A-2
<PAGE>
<TABLE>
<S> <C>
IXC (Interexchange Carrier)..... Literally, a company providing services which cross local
exchange boundaries. Refers to long distance providers.
LAN (Local Area Network)........ A short distance data communications network (typically
within a building or campus) used to link together
computers and peripheral devices (such as printers) under
some form of standard control.
Lit Fiber....................... Fiber activated or equipped with the requisite electronic
and optronic equipment necessary to use the fiber for
transmission.
Metered Telecommunications
Service....................... Service provided by phone companies where charges are
levied based on use, as opposed to unmetered service,
where charges are levied according to a flat, fixed rate.
OC-3, OC-12, OC-48 and OC-192... OC, or Optical Carrier, is a measure of a SONET
transmission optical carrier level. The number following
the OC designation is equal to the corresponding number of
DS-3s. (e.g. OC-192 is equal to 192 DS-3s).
POP (Point of Presence)......... The place where an IXC terminates an end user's long
distance lines just before those lines are connected to
the end-user's local phone company's lines or the
end-user's own direct hookup.
Private Line.................... A direct channel specifically dedicated to a customer's
use between specified points.
RBOCs (Regional Bell Operating
Companies).................... The seven local telephone companies (formerly part of
AT&T) established as a result of the AT&T Divestiture
Decree.
Regeneration/Amplifier.......... Devices which automatically re-transmit or boost signals
on an out-bound circuit.
Route Miles..................... The number of miles spanned by fiber optic cable
calculated without including physically overlapping
segments of cable.
SONET (Synchronous Optical
Network)...................... An electronics and network architecture for variable
bandwidth products which enables transmission of voice,
data and video (multimedia) at very high speeds. SONET
ring architecture provides for virtually instantaneous
restoration of service in the event of a fiber cut by
automatically rerouting traffic in the opposite direction
around the ring.
Switch.......................... A device which opens or closes circuits, completes or
breaks an electrical path, or selects paths or circuits.
Switching is the process of interconnecting circuits to
form a transmission path between users. It also captures
information for billing purposes.
Tier I.......................... The top 15 cities in the United States based on
population.
Unbundled....................... Services, programs, software and training sold separately
from the hardware.
Video Services.................. The provision of video over a channel. Akin to voice dial
tone.
Wireless........................ A communications system that operates without wires.
Cellular service is an example.
</TABLE>
A-3
<PAGE>
METROMEDIA FIBER NETWORK, INC.
OFFER TO EXCHANGE $650,000,000 OF ITS
10% SERIES B SENIOR NOTES DUE 2008,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT,
FOR $650,000,000 OF ITS OUTSTANDING
10% SERIES A SENIOR NOTES DUE 2008
---------------------
PROSPECTUS
, 1999
---------------------
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and, if given or
made, such information or representations must not be relied upon as having been
authorized. This Prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any securities other than the securities to
which it relates or an offer to sell or the solicitation of an offer to buy such
securities in any circumstances in which such offer or solicitation is unlawful.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any time subsequent to its date.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law provides that a Delaware
corporation may indemnify any person who was or is a party or is threatened to
be made a party, to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"proceeding") (other than an action by or in the right of the corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his or her conduct was unlawful. A Delaware corporation may indemnify any person
under such section in connection with a proceeding by or in the right of the
corporation to procure judgment in its favor, as provided in the preceding
sentence, against expenses (including attorneys' fees) actually and reasonably
incurred by him or her in connection with the defense or settlement of such
action, except that no indemnification shall be made in respect thereof unless,
and then only to the extent that, a court of competent jurisdiction shall
determine upon application that such person is fairly and reasonably entitled to
indemnity for such expenses as the court shall deem proper. A Delaware
corporation must indemnify any person who was successful on the merits or
otherwise in defense of any action, suit or proceeding or in defense of any
claim, issue or matter in any proceeding, by reason of the fact that such person
is or was a director, officer, employee r agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection therewith. A Delaware corporation may pay
for the expenses (including attorneys' fees) incurred by an officer or director
in defending a proceeding in advance of the final disposition upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he or she is not entitled to be
indemnified by the corporation.
The Company's Amended and Restated Certificate of Incorporation provides
that the Company will indemnify any person, including persons who are not
directors or officers of the Company, to the extent permitted by Section 145 of
the Delaware General Corporation Law.
Section 102(b) (7) of the Delaware General Corporation Law provides that a
Delaware corporation may in its articles of incorporation eliminate or limit the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director except for
liability: for any breach of the director's duty of loyalty to the corporation
or its stockholder; for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; under Section 174
(pertaining to certain prohibited acts including unlawful payment of dividends
or unlawful purchase or redemption of the corporation's capital stock); or for
any transaction from which the director derived an improper personal benefit.
The Company's Amended and Restated Certificate of Incorporation eliminates the
liability of directors for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit, and provides that if the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the
II-1
<PAGE>
Company shall be eliminated or limited to the fullest extent permitted by the
Delaware General Corporation Law, as so amended.
The Delaware General Corporation Law permits the purchase of insurance on
behalf of directors and officers against any liability asserted against
directors and officers and incurred by such persons in such capacity, or arising
out of their status as such, whether or not the corporation would have the power
to indemnify officers and directors against such liability. The Company's
Amended and Restated Certificate of Incorporation allows the Company to maintain
insurance, at its expense, to protect itself and any director, officer, employee
or agent of the Company or another corporation, partnership, joint venture,
trust or other enterprise against any expense, liability or loss, whether or not
the Company would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law. The Company has
obtained liability coverage, which includes coverage to reimburse the Company
for amounts required or permitted by law to be paid to indemnify directors and
officers.
The Company's Amended and Restated Certificate of Incorporation limits the
liability of directors thereof to the extent permitted by Section 102(b)(7) of
the Delaware General Corporation Law.
The Company's Indenture, dated November 25, 1998, provides that no past,
present or future director, officer, employee, incorporator, agent or
shareholder of the Company, as such, shall have any liability for any
obligations of the Company under the Notes, the Indenture or for any claim based
on, in respect of, or by reason of, such obligations or their creation.
The Company's Purchase Agreement, dated November 20, 1998, provides that
each Initial Purchaser of the Initial Notes severally and not jointly agrees to
indemnify and hold harmless the Company, each of its directors, officers,
employees, agents and each person who controls the Company within the meaning of
the Securities Act or the Securities Exchange Act of 1934, against any and all
losses, claims, damages or liabilities, joint or several, to which they or any
of them may become subject under the Securities Act, the Securities Exchange Act
of 1934 or other federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities (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 memorandum, the
final memorandum for the Initial Notes (or in any supplement or amendment
thereto) or any information provided by the Company to any holder or prospective
purchaser of Notes pursuant to Section 5(h), or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein, in the light of the circumstances under which they
were made, not misleading, and agrees to reimburse each such indemnified party,
as incurred, for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action, but only with reference to written information relating to
such Initial Purchaser furnished to the Company by or on behalf of such Initial
Purchaser through the Representatives specifically for inclusion in the
preliminary memorandum or the final memorandum (or in any amendment or
supplement thereto). This indemnity will be in addition to any liability which
any Initial Purchaser may otherwise have. The indemnity agreement will be in
addition to any liability which any initial purchaser of the Initial Notes may
otherwise have.
The Company's Registration Rights Agreement, dated November 25, 1998,
provides that each holder of Notes, covered by any registration statement
(including each Initial Purchaser and each exchanging dealer) severally agrees
to indemnify and hold harmless (i) the Company, (ii) each of its directors,
(iii) each of its officers, employees and agents and (iv) each Person who
controls the Company within the meaning of either the Securities Act or the
Securities Exchange Act of 1934 against any and all losses, claims, damages or
liabilities to which they may become subject under the Securities Act, the
Securities Exchange Act of 1934 or other federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities arise out of or are
II-2
<PAGE>
based upon any untrue statement or alleged untrue statement of a material fact
contained in the registration statement or any omission or alleged omission to
state therein a material fact required to be stated or necessary to make the
statements therein not misleading, but only with reference to written
information relating to such holder furnished to the Company by or on behalf of
such holder specifically for inclusion in the documents referred to in the
foregoing indemnity. This indemnity agreement will be in addition to any
liability which any such holder may otherwise have. The indemnity will be in
addition to any liability which any such holder may otherwise have.
The Company's Underwriting Agreement, dated October 28, 1997, provides that
each U.S. Underwriter (as defined in the Underwriting Agreement) severally
agrees to indemnify and hold harmless the Company, each of its directors, each
of its officers who signs the Registration Statement, and each person who
controls the Company within the meaning of either the Securities Act or the
Securities Exchange Act of 1934, but only with reference to written information
relating to such U.S. Underwriter furnished to the Company by or on behalf of
such U.S. Underwriter through the U.S. Representatives specifically for
inclusion in the documents referred to in the foregoing indemnity. The indemnity
agreement will be in addition to any liability which any U.S. Underwriter may
otherwise have.
The Company's Directors' and Officers' liability insurance policy is
designed to reimburse the Company for payments made by it pursuant to the
foregoing indemnification. Such policy has aggregate coverage of $25 million.
II-3
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
3.1 Form of Amended and Restated Certificate of Incorporation of Metromedia Fiber Network, Inc.
(incorporated by reference to the Company's Registration Statement on Form S-1 (Registration No.
333-33653)).
3.2 Form of Amended and Restated Bylaws of Metromedia Fiber Network, Inc. (incorporated by reference to the
Company's Registration Statement on Form S-1 (Registration No. 333-33653)).
4.1 Specimen Class A Common Stock Certificate of Metromedia Fiber Network, Inc. (incorporated by reference
to the Company's Registration Statement on Form S-1 (Registration No. 333-33653)).
4.2* Indenture, dated as of November 25, 1998, between Metromedia Fiber Network, Inc. and IBJ Whitehall Bank
& Trust Company (formerly IBJ Schroder Bank & Trust Company).
4.3* Form of 10% Series A Senior Notes due 2008 of Metromedia Fiber Network, Inc.
4.4** Form of 10% Series B Senior Notes due 2008 of Metromedia Fiber Network, Inc.
5.1* Opinion of Paul, Weiss, Rifkind, Wharton & Garrison regarding the legality of the Exchange Notes.
8.1* Opinion of Paul, Weiss, Rifkind, Wharton & Garrison regarding certain United States federal income tax
matters.
10.1 Form of Metromedia Fiber Network, Inc. 1997 Incentive Stock Plan (incorporated by reference to the
Company's Registration Statement on Form S-1 (Registration No. 333-33653)).
10.2 Employment Agreement by and between National Fiber Network, Inc. and Stephen A. Garofalo, dated as of
February 26, 1997 (incorporated by reference to the Company's Registration Statement on Form S-1
(Registration No. 333-33653)).
10.3 Employment Agreement by and between National Fiber Network, Inc. and Howard Finkelstein, dated as of
April 30, 1997 (incorporated by reference to the Company's Registration Statement on Form S-1
(Registration No. 333-33653)).
10.4 Agreement dated as of April 30, 1997, as amended by a Modification Agreement dated as of October, 1997
by and among Metromedia Company, Stuart Subotnick, Arnold Wadler, Silvia Kessel, Stephen A. Garofalo and
National Fiber Network, Inc. (incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration No. 333-33653)).
10.5 Franchise Agreement between The City of New York and National Fiber Network, Inc., dated as of December
20, 1993 (incorporated by reference to the Company's Registration Statement on Form S-1 (Registration
No. 333-33653)).
10.6 Conduit Occupancy Agreement by and between New York Telephone Company and National Fiber Network, Inc.,
dated as of May 1993 (incorporated by reference to the Company's Registration Statement on Form S-1
(Registration No. 333-33653)).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
10.7 Consulting Agreement between National Fiber Network and Realprop Capital Corporation, dated as of
February 1, 1996 (incorporated by reference to the Company's Registration Statement on Form S-1
(Registration No. 333-33653)).
10.8 Letter Agreement from National Fiber Network, Inc. to Peter Sahagen, dated February 11, 1997
(incorporated by reference to the Company's Registration Statement on Form S-1 (Registration No.
333-33653)).
10.9 Office Lease by and between National Fiber Network, Inc. and 110 East 42nd Street Associates, dated as
of March 19, 1997 (incorporated by reference to the Company's Registration Statement on Form S-1
(Registration No. 333-33653)).
10.10 Office Lease by and between National Fiber Network, Inc. and 110 East 42nd Street, dated as of June 1997
(incorporated by reference to the Company's Registration Statement on Form S-1 (Registration No.
333-33653)).
10.11 Trademark License Agreement by and between Metromedia Company and Metromedia Fiber Network, Inc., dated
as of August 14, 1997 (incorporated by reference to the Company's Registration Statement on Form S-1
(Registration No. 333-33653)).
10.12 Fiber Optic Use Agreement between National Fiber Network, Inc. and NextLink New York, L.L.C., dated as
of June 3, 1997 (portions of this exhibit are subject to a request to the Securities and Exchange
Commission for confidential treatment, and omitted material has been separately filed with the
Securities and Exchange Commission) (incorporated by reference to the Company's Registration Statement
on Form S-1 (Registration No. 333-33653)).
10.13 Amended and Restated Agreement for the Provision of a Fiber Optic Transmission Network, dated as of the
Effective Date by and between US ONE Communications of New York, Inc. and National Fiber Network, Inc.
(portions of this exhibit are subject to a request to the Securities and Exchange Commission for
confidential treatment, and omitted material has been separately filed with the Securities and Exchange
Commission) (incorporated by reference to the Company's Registration Statement on Form S-1 (Registration
No. 333-33653)).
10.14 Fiber Lease and Innerduct Use Agreement by and between Metromedia Fiber Network, Inc. and NextLink
Communications, Inc., dated as of February 23, 1998 (portions of this exhibit are subject to a request
to the Securities and Exchange Commission for confidential treatment, and omitted material has been
separately filed with the Securities and Exchange Commission) (incorporated by reference to the
Company's Annual Report on Form 10-K (File No.000-2369)).
10.15 Amendment No. 1 to Fiber Lease and Innerduct Use Agreement by and between Metromedia Fiber Network, Inc.
and NextLink Communications, Inc., made and entered into as of March 4, 1998 (portions of this exhibit
are subject to a request to the Securities and Exchange Commission for confidential treatment, and
omitted material has been separately filed with the Securities and Exchange Commission) (incorporated by
reference to the Company's Annual Report on Form 10-K (File No.000-2369)).
10.16 Agreement of Lease by and between Connecticut General Life Insurance Company and Metromedia Fiber
Network Services, Inc., dated as of March 9, 1998 (incorporated by reference to the Company's Annual
Report on Form 10-K (File No. 000-2369)).
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
10.17* Purchase Agreement, dated November 20, 1998 among Metromedia Fiber Network, Inc., Salomon Smith Barney,
Inc., Chase Securities, Inc., Deutsche Bank Securities Inc. and Donaldson Lufkin & Jenrette Securities
Corporation.
10.18* Registration Rights Agreement, dated as of November 25, 1998 among Metromedia Fiber Network, Inc.,
Salomon Smith Barney, Inc., Chase Securities, Inc., Deutsche Bank Securities Inc. and Donaldson Lufkin &
Jenrette Securities Corporation.
10.19* Security Agreement, dated as of November 25, 1998, between Metromedia Fiber Network, Inc. and IBJ
Schroder Bank & Trust Company.
10.20** Employment Agreement by and between Metromedia Fiber Network, Inc. and Vincent A. Galluccio, dated as of
August 31, 1998.
10.21** Employment Agreement by and between Metromedia Fiber Network, Inc. and Gerard Benedetto, dated as of
August 31, 1998.
10.22** Employment Agreement by and between Metromedia Fiber Network, Inc. and Nicholas M. Tanzi, dated as of
August 31, 1998.
12.1** Statement Regarding Computation of Ratios.
21.1* List of Subsidiaries of Metromedia Fiber Network, Inc.
23.1* Consent of Ernst & Young LLP.
23.2* Consent of M.R. Weiser & Co. LLP.
23.3* Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in the opinion filed as Exhibit 5.1 to
this Registration Statement).
23.4* Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in the opinion filed as Exhibit 8.1 to
this Registration Statement).
24.1* Power of Attorney from officers and directors (contained on signature page).
25.1* Statement of Eligibility of IBJ Whitehall Bank & Trust Company as Trustee, on Form T-1.
99.1** Form of Exchange Agency Agreement.
99.2* Form of Letter of Transmittal.
99.3** Form of Notice of Guaranteed Delivery.
</TABLE>
- ------------------------
* Filed herewith.
** To be filed by Amendment.
(B) FINANCIAL DATA SCHEDULES.
None.
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 20, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission 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
II-6
<PAGE>
(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.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Securities and
Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
The undersigned Registrant hereby undertakes that for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes as follows:
II-7
<PAGE>
(a) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other Items of the applicable form.
(b) Every prospectus (i) that is filed pursuant to the paragraph immediately
preceding, or (ii) that purports to meet the requirements of section 10(a)(3) of
the Act and is used in connection with an offering of securities subject to Rule
415, will be filed as a part of an amendment to the registration statement and
will not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 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 the Registration Statement when it became effective.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Metromedia Fiber Network, Inc. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on January 25, 1999.
<TABLE>
<S> <C> <C>
METROMEDIA FIBER NETWORK, INC.
By: /s/ STEPHEN A. GAROFALO
-----------------------------------------
Name: Stephen A. Garofalo
Title: Chief Executive Officer and
Chairman of the Board of Directors
</TABLE>
Metromedia Fiber Network, Inc., a Delaware Corporation, and each person
whose signature appears below constitutes and appoints Stephen A. Garofalo,
Howard M. Finklestein, Gerard Benedetto, Silvia Kessel, and Arnold L. Wadler,
and each of them, with full power to act without the others, such person's true
and lawful attorneys-in-fact, with full power of substitution and
resubstitution, for him or her and in his name, place and stead, in any and all
capacities, to (i) sign this Registration Statement, and any and all amendments
thereto (including, without limitation, post-effective amendments and any
subsequent registration statement filed pursuant to Rule 462(b) or Rule 462(d)
under the Securities Act of 1933, as amended), and other documents in connection
therewith, with the Securities and Exchange Commission, (ii) act on, sign and
file such certificates, instruments, agreements and other documents as may be
necessary or appropriate in connection therewith, (iii) act on and file any
supplement to any prospectus included in this Registration Statement or any such
amendment or any subsequent registration statement filed pursuant to Rule 462(b)
under the Securities Act, and (iv) take any and all actions which may be
necessary or appropriate in connection therewith, granting unto said
attorneys-in-fact, and each of them, full power and authority to do and perform
each and every act and thing necessary or desirable to be done in and about the
premises, as fully and to all intents and purposes as he or she might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact,
or either of them, or their substitute or substitutes may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated below and on January 25, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S> <C>
/s/ STEPHEN A. GAROFALO Chief Executive Officer
- ------------------------------ and Chairman of the
Stephen A. Garofalo Board of Directors
/s/ GERARD BENEDETTO
- ------------------------------ Vice President--Chief
Gerard Benedetto Financial Officer
/s/ HOWARD M. FINKELSTEIN
- ------------------------------ President, Chief Operating
Howard M. Finkelstein Officer and Director
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S> <C>
- ------------------------------ Senior Vice President and
Vincent A. Galluccio Director
/s/ SILVIA KESSEL
- ------------------------------ Executive Vice President
Silvia Kessel and Director
/s/ JOHN W. KLUGE
- ------------------------------ Director
John W. Kluge
- ------------------------------ Director
David Rockefeller
/s/ STUART SUBOTNICK
- ------------------------------ Director
Stuart Subotnick
/s/ ARNOLD L. WADLER Executive Vice President,
- ------------------------------ General Counsel,
Arnold L. Wadler Secretary and Director
- ------------------------------ Director
Leonard White
</TABLE>
II-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------------- -----
<S> <C> <C>
3.1 Form of Amended and Restated Certificate of Incorporation of Metromedia Fiber Network, Inc.
(incorporated by reference to the Company's Registration Statement on Form S-1 (Registration No.
333-33653)).
3.2 Form of Amended and Restated Bylaws of Metromedia Fiber Network, Inc. (incorporated by reference
to the Company's Registration Statement on Form S-1 (Registration No. 333-33653)).
4.1 Specimen Class A Common Stock Certificate of Metromedia Fiber Network, Inc. (incorporated by
reference to the Company's Registration Statement on Form S-1 (Registration No. 333-33653)).
4.2* Indenture, dated as of November 25, 1998, between Metromedia Fiber Network, Inc. and IBJ
Whitehall Bank & Trust Company (formerly IBJ Schroder Bank & Trust Company).
4.3* Form of 10% Series A Senior Notes due 2008 of Metromedia Fiber Network, Inc.
4.4** Form of 10% Series B Senior Notes due 2008 of Metromedia Fiber Network, Inc.
5.1* Opinion of Paul, Weiss, Rifkind, Wharton & Garrison regarding the legality of the Exchange Notes.
8.1* Opinion of Paul, Weiss, Rifkind, Wharton & Garrison regarding certain United States federal
income tax matters.
10.1 Form of Metromedia Fiber Network, Inc. 1997 Incentive Stock Plan (incorporated by reference to
the Company's Registration Statement on Form S-1 (Registration No. 333-33653)).
10.2 Employment Agreement by and between National Fiber Network, Inc. and Stephen A. Garofalo, dated
as of February 26, 1997 (incorporated by reference to the Company's Registration Statement on
Form S-1 (Registration No. 333-33653)).
10.3 Employment Agreement by and between National Fiber Network, Inc. and Howard Finkelstein, dated as
of April 30, 1997 (incorporated by reference to the Company's Registration Statement on Form S-1
(Registration No. 333-33653)).
10.4 Agreement dated as of April 30, 1997, as amended by a Modification Agreement dated as of October,
1997 by and among Metromedia Company, Stuart Subotnick, Arnold Wadler, Silvia Kessel, Stephen A.
Garofalo and National Fiber Network, Inc. (incorporated by reference to the Company's
Registration Statement on Form S-1 (Registration No. 333-33653)).
10.5 Franchise Agreement between The City of New York and National Fiber Network, Inc., dated as of
December 20, 1993 (incorporated by reference to the Company's Registration Statement on Form S-1
(Registration No. 333-33653)).
10.6 Conduit Occupancy Agreement by and between New York Telephone Company and National Fiber Network,
Inc., dated as of May 1993 (incorporated by reference to the Company's Registration Statement on
Form S-1 (Registration No. 333-33653)).
10.7 Consulting Agreement between National Fiber Network and Realprop Capital Corporation, dated as of
February 1, 1996 (incorporated by reference to the Company's Registration Statement on Form S-1
(Registration No. 333-33653)).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------------- -----
<S> <C> <C>
10.8 Letter Agreement from National Fiber Network, Inc. to Peter Sahagen, dated February 11, 1997
(incorporated by reference to the Company's Registration Statement on Form S-1 (Registration No.
333-33653)).
10.9 Office Lease by and between National Fiber Network, Inc. and 110 East 42nd Street Associates,
dated as of March 19, 1997 (incorporated by reference to the Company's Registration Statement on
Form S-1 (Registration No. 333-33653)).
10.10 Office Lease by and between National Fiber Network, Inc. and 110 East 42nd Street, dated as of
June 1997 (incorporated by reference to the Company's Registration Statement on Form S-1
(Registration No. 333-33653)).
10.11 Trademark License Agreement by and between Metromedia Company and Metromedia Fiber Network, Inc.,
dated as of August 14, 1997 (incorporated by reference to the Company's Registration Statement on
Form S-1 (Registration No. 333-33653)).
10.12 Fiber Optic Use Agreement between National Fiber Network, Inc. and NextLink New York, L.L.C.,
dated as of June 3, 1997 (portions of this exhibit are subject to a request to the Securities and
Exchange Commission for confidential treatment, and omitted material has been separately filed
with the Securities and Exchange Commission) (incorporated by reference to the Company's
Registration Statement on Form S-1 (Registration No. 333-33653)).
10.13 Amended and Restated Agreement for the Provision of a Fiber Optic Transmission Network, dated as
of the Effective Date by and between US ONE Communications of New York, Inc. and National Fiber
Network, Inc. (portions of this exhibit are subject to a request to the Securities and Exchange
Commission for confidential treatment, and omitted material has been separately filed with the
Securities and Exchange Commission) (incorporated by reference to the Company's Registration
Statement on Form S-1 (Registration No. 333-33653)).
10.14 Fiber Lease and Innerduct Use Agreement by and between Metromedia Fiber Network, Inc. and
NextLink Communications, Inc., dated as of February 23, 1998 (portions of this exhibit are
subject to a request to the Securities and Exchange Commission for confidential treatment, and
omitted material has been separately filed with the Securities and Exchange Commission)
(incorporated by reference to the Company's Annual Report on Form 10-K (File No.000-2369)).
10.15 Amendment No. 1 to Fiber Lease and Innerduct Use Agreement by and between Metromedia Fiber
Network, Inc. and NextLink Communications, Inc., made and entered into as of March 4, 1998
(portions of this exhibit are subject to a request to the Securities and Exchange Commission for
confidential treatment, and omitted material has been separately filed with the Securities and
Exchange Commission) (incorporated by reference to the Company's Annual Report on Form 10-K (File
No.000-2369)).
10.16 Agreement of Lease by and between Connecticut General Life Insurance Company and Metromedia Fiber
Network Services, Inc., dated as of March 9, 1998 (incorporated by reference to the Company's
Annual Report on Form 10-K (File No. 000-2369)).
10.17* Purchase Agreement, dated November 20, 1998 among Metromedia Fiber Network, Inc., Salomon Smith
Barney, Inc., Chase Securities, Inc., Deutsche Bank Securities Inc. and Donaldson Lufkin &
Jenrette Securities Corporation.
10.18* Registration Rights Agreement, dated as of November 25, 1998 among Metromedia Fiber Network,
Inc., Salomon Smith Barney, Inc., Chase Securities, Inc., Deutsche Bank Securities Inc. and
Donaldson Lufkin & Jenrette Securities Corporation.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
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<S> <C> <C>
10.19* Security Agreement, dated as of November 25, 1998, between Metromedia Fiber Network, Inc. and IBJ
Schroder Bank & Trust Company.
10.20** Employment Agreement by and between Metromedia Fiber Network, Inc. and Vincent A. Galluccio,
dated as of August 31, 1998.
10.21** Employment Agreement by and between Metromedia Fiber Network, Inc. and Gerard Benedetto, dated as
of August 31, 1998.
10.22** Employment Agreement by and between Metromedia Fiber Network, Inc. and Nicholas M. Tanzi, dated
as of August 31, 1998.
12.1** Statement Regarding Computation of Ratios.
21.1* List of Subsidiaries of Metromedia Fiber Network, Inc.
23.1* Consent of Ernst & Young LLP.
23.2* Consent of M.R. Weiser & Co. LLP.
23.3* Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in the opinion filed as Exhibit 5.1
to this Registration Statement).
23.4* Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in the opinion filed as Exhibit 8.1
to this Registration Statement).
24.1* Power of Attorney from officers and directors (contained on signature page).
25.1* Statement of Eligibility of IBJ Whitehall Bank & Trust Company as Trustee, on Form T-1.
99.1** Form of Exchange Agency Agreement.
99.2* Form of Letter of Transmittal.
99.3** Form of Notice of Guaranteed Delivery.
</TABLE>
- ------------------------
* Filed herewith.
** To be filed by Amendment.
<PAGE>
Exhibit 4.2
METROMEDIA FIBER NETWORK, INC.
$650,000,000
SERIES A AND SERIES B
10% SENIOR NOTES DUE 2008
INDENTURE
Dated as of November 25, 1998
IBJ SCHRODER BANK & TRUST COMPANY
Trustee
<PAGE>
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture Act Section Indenture Section
<S> <C>
310(a)(1)................................................................................... 7.10
(a)(2)...................................................................................... 7.10
(a)(3)...................................................................................... N.A.
(a)(4)...................................................................................... N.A.
(a)(5)...................................................................................... 7.10
(b)......................................................................................... 7.10
(c)......................................................................................... N.A.
311(a)...................................................................................... 7.11
(b)......................................................................................... 7.11
(i)(c)...................................................................................... N.A.
312(a)...................................................................................... 2.05
(b)......................................................................................... 12.03
(c)......................................................................................... 12.03
313(a)...................................................................................... 7.06
(b)(2)...................................................................................... 7.07
(c)......................................................................................... 7.06; 12.02
(d)......................................................................................... 7.06
314(a)...................................................................................... 4.03; 12.02
(c)(1)...................................................................................... 12.04
(c)(2)...................................................................................... 12.04
(c)(3)...................................................................................... N.A.
(e)......................................................................................... 12.05
(f)......................................................................................... N.A.
315(a)...................................................................................... 7.01
(b)......................................................................................... 7.05; 12.02
(A)(c)...................................................................................... 7.01
(d)......................................................................................... 7.01
(e)......................................................................................... 6.11
316(a)(last sentence)....................................................................... 2.09
(a)(1)(A)................................................................................... 6.05
(a)(1)(B)................................................................................... 6.04
(a)(2)...................................................................................... N.A.
(b)......................................................................................... 6.07
(c)......................................................................................... 9.04
317(a)(1)................................................................................... 6.08
(a)(2)...................................................................................... 6.09
(b)......................................................................................... 2.04
318(a)...................................................................................... 12.01
(b)......................................................................................... N.A.
(c)......................................................................................... 12.01
</TABLE>
N.A. means not applicable
*This Cross-Reference Table is not, for any purposes, part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE................................................1
SECTION 1.01 DEFINITIONS...................................................................1
SECTION 1.02 OTHER DEFINITIONS............................................................19
SECTION 1.03 TRUST INDENTURE ACT DEFINITIONS..............................................20
SECTION 1.04 RULES OF CONSTRUCTION........................................................20
ARTICLE 2. THE NOTES................................................................................21
SECTION 2.01 FORM AND DATING..............................................................21
SECTION 2.02 EXECUTION AND AUTHENTICATION.................................................22
SECTION 2.03 REGISTRAR AND PAYING AGENT...................................................23
SECTION 2.04 PAYING AGENT TO HOLD MONEY IN TRUST..........................................23
SECTION 2.05 HOLDER LISTS.................................................................24
SECTION 2.06 TRANSFER AND EXCHANGE........................................................24
SECTION 2.07 REPLACEMENT NOTES............................................................38
SECTION 2.08 OUTSTANDING NOTES............................................................38
SECTION 2.09 TREASURY NOTES...............................................................39
SECTION 2.10 TEMPORARY NOTES..............................................................39
SECTION 2.11 CANCELLATION.................................................................39
SECTION 2.12 DEFAULTED INTEREST...........................................................39
SECTION 2.13 CUSIP NUMBERS................................................................40
ARTICLE 3. REDEMPTION AND PREPAYMENT................................................................40
SECTION 3.01 NOTICES TO TRUSTEE...........................................................40
SECTION 3.02 SELECTION OF NOTES TO BE REDEEMED............................................40
SECTION 3.03 NOTICE OF REDEMPTION.........................................................41
SECTION 3.04 EFFECT OF NOTICE OF REDEMPTION...............................................42
SECTION 3.05 DEPOSIT OF REDEMPTION PRICE..................................................42
SECTION 3.06 NOTES REDEEMED IN PART.......................................................42
SECTION 3.07 OPTIONAL REDEMPTION. ........................................................42
SECTION 3.08 MANDATORY REDEMPTION.........................................................43
ARTICLE 4. COVENANTS................................................................................45
SECTION 4.01 PAYMENT OF NOTES.............................................................45
SECTION 4.02 MAINTENANCE OF OFFICE OR AGENCY..............................................46
SECTION 4.03 REPORTS......................................................................46
SECTION 4.04 COMPLIANCE CERTIFICATE.......................................................47
SECTION 4.05 TAXES........................................................................48
SECTION 4.06 STAY, EXTENSION AND USURY LAWS...............................................48
SECTION 4.07 RESTRICTED PAYMENTS..........................................................48
SECTION 4.08 DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES.................................................................52
SECTION 4.09 INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK...................53
SECTION 4.10 ASSET SALES..................................................................56
SECTION 4.11 TRANSACTIONS WITH AFFILIATES.................................................57
SECTION 4.12 LIENS........................................................................58
</TABLE>
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<TABLE>
<S> <C>
SECTION 4.13 CORPORATE EXISTENCE..........................................................59
SECTION 4.14 CHANGE OF CONTROL............................................................59
SECTION 4.15 BUSINESS ACTIVITIES..........................................................60
SECTION 4.16 PAYMENTS FOR CONSENT.........................................................60
SECTION 4.17 MONEY FOR PAYMENTS TO BE HELD IN TRUST.......................................60
ARTICLE 5. SUCCESSORS...............................................................................62
SECTION 5.01 MERGER, CONSOLIDATION, OR SALE OF ASSETS.....................................62
SECTION 5.02 SUCCESSOR CORPORATION SUBSTITUTED............................................63
ARTICLE 6. DEFAULTS AND REMEDIES....................................................................63
SECTION 6.01 EVENTS OF DEFAULT............................................................63
SECTION 6.02 ACCELERATION.................................................................64
SECTION 6.03 OTHER REMEDIES...............................................................65
SECTION 6.04 WAIVER OF PAST DEFAULTS......................................................65
SECTION 6.05 CONTROL BY MAJORITY..........................................................65
SECTION 6.06 LIMITATION ON SUITS..........................................................66
SECTION 6.07 RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT................................66
SECTION 6.08 COLLECTION SUIT BY TRUSTEE...................................................66
SECTION 6.09 TRUSTEE MAY FILE PROOFS OF CLAIM.............................................67
SECTION 6.10 PRIORITIES...................................................................67
SECTION 6.11 UNDERTAKING FOR COSTS........................................................68
ARTICLE 7. TRUSTEE..................................................................................68
SECTION 7.01 DUTIES OF TRUSTEE............................................................68
SECTION 7.02 RIGHTS OF TRUSTEE............................................................69
SECTION 7.03 INDIVIDUAL RIGHTS OF TRUSTEE.................................................70
SECTION 7.04 TRUSTEE'S DISCLAIMER.........................................................70
SECTION 7.05 NOTICE OF DEFAULTS...........................................................70
SECTION 7.06 REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES...................................71
SECTION 7.07 COMPENSATION AND INDEMNITY...................................................71
SECTION 7.08 REPLACEMENT OF TRUSTEE.......................................................72
SECTION 7.09 SUCCESSOR TRUSTEE BY MERGER, ETC.............................................73
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION................................................73
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY............................74
ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE.................................................74
SECTION 8.01 OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.....................74
SECTION 8.02 LEGAL DEFEASANCE AND DISCHARGE...............................................74
SECTION 8.03 COVENANT DEFEASANCE..........................................................75
SECTION 8.04 CONDITIONS TO LEGAL OR COVENANT DEFEASANCE...................................75
SECTION 8.05 DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS...............................................76
SECTION 8.06 REPAYMENT TO COMPANY.........................................................77
SECTION 8.07 REINSTATEMENT................................................................77
SECTION 8.08 SURVIVAL.....................................................................78
ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER.........................................................78
SECTION 9.01 WITHOUT CONSENT OF HOLDERS OF NOTES..........................................78
</TABLE>
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<TABLE>
<S> <C>
SECTION 9.02 WITH CONSENT OF HOLDERS OF NOTES.............................................79
SECTION 9.03 COMPLIANCE WITH TRUST INDENTURE ACT..........................................80
SECTION 9.04 REVOCATION AND EFFECT OF CONSENTS............................................81
SECTION 9.05 NOTATION ON OR EXCHANGE OF NOTES.............................................81
SECTION 9.06 TRUSTEE TO SIGN AMENDMENTS, ETC..............................................81
ARTICLE 10. SATISFACTION AND DISCHARGE..............................................................82
SECTION 10.01 SATISFACTION AND DISCHARGE OF INDENTURE......................................82
SECTION 10.02 APPLICATION OF TRUST MONEY...................................................83
ARTICLE 11. SECURITY................................................................................83
SECTION 11.01 SECURITY.....................................................................83
ARTICLE 12. MISCELLANEOUS............................................................................85
SECTION 12.01 TRUST INDENTURE ACT CONTROLS.................................................85
SECTION 12.02 NOTICES......................................................................85
SECTION 12.03 COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS
OF NOTES.....................................................................87
SECTION 12.04 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT...........................87
SECTION 12.05 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION................................87
SECTION 12.06 RULES BY TRUSTEE AND AGENTS..................................................88
SECTION 12.07 NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
SHAREHOLDERS.................................................................88
SECTION 12.08 GOVERNING LAW................................................................88
SECTION 12.09 CONSENT TO JURISDICTION AND SERVICE..........................................88
SECTION 12.10 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS................................89
SECTION 12.11 SUCCESSORS...................................................................89
SECTION 12.12 SEVERABILITY.................................................................89
SECTION 12.13 COUNTERPART ORIGINALS........................................................89
SECTION 12.14 TABLE OF CONTENTS, HEADINGS, ETC.............................................89
EXHIBIT A-1 FORM OF NOTE..........................................................................A-1-1
EXHIBIT A-2 FORM OF REGULATION S TEMPORARY GLOBAL NOTE............................................A-2-1
EXHIBIT B FORM OF CERTIFICATE OF TRANSFER...........................................................B-1
EXHIBIT C FORM OF CERTIFICATE OF EXCHANGE...........................................................C-1
</TABLE>
iii
<PAGE>
INDENTURE, dated as of November 25, 1998 by and between
Metromedia Fiber Network, Inc., a Delaware corporation (the "Company") and IBJ
Schroder Bank & Trust Company, a New York Banking corporation, as trustee (the
"Trustee").
The Company and the Trustee agree as follows for the benefit
of each other and for the equal and ratable benefit of the Holders of the 10%
Series A Senior Notes due 2008 (the "Series A Notes") and the 10% Series B
Senior Notes due 2008 (the "Series B Notes" and, together with the Series A
Notes, the "Notes"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 DEFINITIONS.
"144A Global Note" means a global note in the form of Exhibit
A-1 hereto bearing the Global Note Legend and the Private Placement Legend and
deposited with or on behalf of, and registered in the name of, the Depositary or
its nominee that will be issued in a denomination equal to the outstanding
aggregate principal amount of the Notes sold in reliance on Rule 144A.
"Acquired Debt" or "Acquired Preferred Stock" means, with
respect to any specified Person, Indebtedness or Preferred Stock of any other
Person existing at the time such other Person is merged with or into or became a
Subsidiary of such specified Person (including by Designation or Revocation),
provided such Indebtedness or Preferred Stock is not incurred in connection
with, or in contemplation of, such other Person merging with or into or becoming
a Subsidiary of such specified Person.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling, 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 Stock of a
Person shall be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Applicable Procedures" means, with respect to any transfer or
exchange of or for beneficial interests in any Global Note, the rules and
procedures of the Depositary, Euroclear or CEDEL Bank that apply to such
transfer or exchange.
"Asset Sale" means (i) the sale, lease, transfer, conveyance
or other disposition of any assets or rights (including, without limitation, by
way of a sale and leaseback) other than sales of inventory in the ordinary
course of business and other than any sale, lease, transfer, conveyance or
1
<PAGE>
other disposition in the ordinary course of business of capacity on any fiber
optic or cable system owned, controlled or operated by the Company or any
Restricted Subsidiary or of telecommunications capacity, transmission rights,
conduit or rights-of-way acquired by the Company or any Restricted Subsidiary
for use in a Telecommunications Business of the Company or any Restricted
Subsidiary (provided that the sale, lease, transfer, conveyance or other
disposition of all or substantially all of the assets of the Company and its
Restricted Subsidiaries taken as a whole will be governed by the provisions of
Section 5.01 hereof and/or Section 4.14 and not by the provisions of Section
4.10 hereof), and (ii) the issue or sale by the Company or any of its Restricted
Subsidiaries of Equity Interests of any Subsidiary. Notwithstanding the
foregoing, the following items shall not be deemed to be Asset Sales: (i) a
transfer of assets by the Company to a Consolidated Subsidiary or by a
Subsidiary to the Company or to a Consolidated Subsidiary, (ii) an issuance of
Equity Interests by a Subsidiary to the Company or to a Consolidated Subsidiary,
(iii) a Restricted Payment that is permitted by Section 4.07 hereof, (iv)
Permitted Investments made in accordance with clause (a) or (d) of the
definition thereof, (v) a disposition of obsolete or worn out equipment or
equipment that is no longer useful in the conduct of a Telecommunications
Business of the Company and its Restricted Subsidiaries and that is disposed of
in the ordinary course of business, (vi) the surrender or waiver by the Company
or any of its Restricted Subsidiaries of contract rights or the settlement,
release or surrender of contract, tort or other claims of any kind by the
Company or any of its Restricted Subsidiaries or the grant by the Company or any
of its Restricted Subsidiaries of a Lien not prohibited by the Indenture, (vii)
the sale of Cash Equivalents in the ordinary course of business; and (viii)
sales, transfers, assignments and other dispositions of assets (or related
assets in related transactions) in the ordinary course of business with an
aggregate fair market value of less than $1.0 million.
"Bankruptcy Law" means Title 11, U.S. Code or any similar
federal or state law for the relief of debtors.
"Board of Directors" means the board of directors or other
governing body of the Company or, if the Company is owned or managed by a single
entity, the board of directors or other governing body of such entity, or, in
either case, any committee thereof duly authorized to act on behalf of such
board or governing body.
"Board Resolution" means a duly authorized resolution of the
Board of Directors.
"Business Day" means any day other than a Legal Holiday.
"Capital Contribution" means any contribution to the equity of
the Company from a direct or indirect parent of the Company for which no
consideration other than the issuance of common stock with no redemption rights
and no special preferences, privileges or voting rights is given.
"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.
2
<PAGE>
"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 or limited
liability company, partnership or membership 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 (provided that the
full faith and credit of the United States is pledged in support 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 a Thompson Bank Watch Rating of "B" or better, (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clause (ii) 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 Investors
Service, Inc. or Standard & Poor's Ratings Services and in each case maturing
within six months after the date of acquisition and (vi) money market funds at
least 95% of the assets of which constitute Cash Equivalents of the kinds
described in clauses (i)-(v) of this definition, provided that with respect to
any Foreign Subsidiary, Cash Equivalents shall also mean those investments that
are comparable to clauses (iii) through (vi) above in such Foreign Subsidiary 's
country of organization or country where it conducts business operations.
"CEDEL Bank" means CEDEL Bank, SA.
"Change of Control" means the occurrence of any of the
following: (i) any "person" or "group" (as such terms are used in Section
13(d)(3) of the Exchange Act), other than a Permitted Holder, is or becomes
the beneficial owner, directly or indirectly, of 35% or more of the Voting
Stock (measured by voting power rather than number of shares) of the Company
and the Permitted Holders own, in the aggregate, a lesser percentage of the
total Voting Stock (measured by voting power rather than by number of shares)
of the Company than such person and do not have the right or ability by
voting power, contract or otherwise to elect or designate for election a
majority of the board of directors of the Company (for the purposes of this
clause, such other person shall be deemed to "beneficially own" any Voting
Stock of a specified corporation held by a parent corporation if such other
person beneficially owns, directly or indirectly, more than 35% of the Voting
Stock (measured by voting power rather than by number of shares) of such
parent corporation and the Permitted Holders beneficially own, directly or
indirectly, in the aggregate a lesser percentage of Voting Stock (measured by
voting power rather than by number of shares) of such parent corporation and
do not have the right or ability by voting power, contract or otherwise to
elect or designate for election a majority of the board of directors of such
parent corporation), (ii) during any period of two consecutive years,
Continuing Directors cease for any reason to constitute a majority of the
Board of Directors of the Company, (iii) the Company consolidates or merges
with
3
<PAGE>
or into any other Person, other than a consolidation or merger (a) of the
Company into a Wholly Owned Restricted Subsidiary of the Company or (b) pursuant
to a transaction in which the outstanding Voting Stock of the Company is changed
into or exchanged for cash, securities or other property with the effect that
the beneficial owners of the outstanding Voting Stock of the Company immediately
prior to such transaction, beneficially own, directly or indirectly, at least a
majority of the Voting Stock (measured by voting power rather than number of
shares) of the surviving corporation immediately following such transaction or
(iv) the sale, 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 Restricted Subsidiaries
taken as a whole to any person other than a Wholly Owned Restricted Subsidiary
of the Company or a Permitted Holder or a person more than 50% of the Voting
Stock (measured by voting power rather than by number of shares) of which is
owned, directly or indirectly, following such transaction or transactions by the
Permitted Holders; provided, however, that sales, transfers, conveyances or
other dispositions in the ordinary course of business of capacity on fiber optic
or cable systems owned, controlled or operated by the Company or any Restricted
Subsidiary or of telecommunications capacity or transmission rights, rights of
way or conduit acquired by the Company or any Restricted Subsidiary for use in
the Telecommunications Business of the Company or a Restricted Subsidiary,
including, without limitation, for sale, lease, transfer, conveyance or other
disposition to any customer of the Company or any Restricted Subsidiary shall
not be deemed a disposition of assets for purposes of this clause (iv).
"Company" means Metromedia Fiber Network, Inc., a Delaware
corporation, and any and all successors thereto.
"Consolidated Capital Ratio" means, with respect to the
Company as of any date, the ratio of (i) the aggregate consolidated amount of
Indebtedness of the Company and its Restricted Subsidiaries then outstanding to
(ii) the Consolidated Net Worth of the Company and its Consolidated Subsidiaries
as of such date.
"Consolidated Cash Flow" means, with respect to the Company
for any period, the Consolidated Net Income of the Company and its Consolidated
Subsidiaries for such period plus (A), to the extent that any of the following
items were deducted in computing such Consolidated Net Income, but without
duplication, (i) provision for taxes based on income or profits of the Company
and its Consolidated Subsidiaries for such period, plus (ii) consolidated
interest expense of the Company and its Consolidated Subsidiaries for such
period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and 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), plus (iii) depreciation,
amortization (including amortization of goodwill and other intangibles and the
amount of capacity available for sale (other than for backhaul capacity) charged
to cost of sales, but excluding amortization of prepaid cash expenses that were
paid in a prior period), and other non-cash expenses (excluding any such
non-cash expense to the extent that it represents an accrual of
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or reserve for cash expenses in any future period or amortization of a prepaid
cash expense that was paid in a prior period) of the Company and its
Consolidated Subsidiaries for such period, minus (B) non-cash items increasing
such Consolidated Net Income for such period (other than items that were accrued
in the ordinary course of business), 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 and
other non-cash expenses of, a Restricted Subsidiary of the Company shall be
added to Consolidated Net Income to compute Consolidated Cash Flow of the
Company only to the extent that a corresponding amount would be permitted at the
date of determination to be dividended to the Company by such Restricted
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 that Restricted Subsidiary or its
shareholders.
"Consolidated Leverage Ratio" means, with respect to the
Company, as of any date, the ratio of (i) the aggregate consolidated amount of
Indebtedness of the Company and its Restricted Subsidiaries then outstanding to
(ii) the annualized (that is, multiplied by four) Consolidated Cash Flow of the
Company and its Consolidated Subsidiaries for the most recently ended fiscal
quarter.
"Consolidated Net Income" means, with respect to the Company
for any period, the aggregate of the Net Income of the Company and its
Consolidated Subsidiaries for such period, on a consolidated basis, determined
in accordance with GAAP; provided that (i) the Net Income (but not loss) of any
Person 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 Company or a Consolidated Subsidiary thereof by such Person but not
in excess of the Company's Equity Interests in such Person, (ii) the Net Income
of any Restricted Subsidiary shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by that Restricted
Subsidiary of that 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 Restricted Subsidiary or its shareholders, except
that the Company's equity in the net income of any such Restricted Subsidiary
for such period may be included in such Consolidated Net Income up to the
aggregate amount of cash that could have been distributed by such Restricted
Subsidiary during such period to the Company as a dividend, (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, (iv) the equity of the
Company or any Restricted Subsidiary in the net income (if positive) of any
Unrestricted Subsidiary shall be included in such Consolidated Net Income up to
the aggregate amount of cash actually distributed by such Unrestricted
Subsidiary during such period to the Company or a Consolidated Subsidiary as a
dividend or other distribution (but not in excess of the amount of the Net
Income of such Unrestricted Subsidiary for such period) and (v) the cumulative
effect of a change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to the Company as
of any date, the sum of (i) the consolidated equity of the common shareholders
of the Company and its Consolidated
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Subsidiaries that are Consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on the Company'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 the
Company upon issuance of such Preferred Stock, less (x) all write-ups (other
than write-ups resulting from foreign currency translations and write-ups of
tangible assets of a going concern business made within 12 months after the
acquisition of such business) subsequent to the Issue Date in the book value of
any asset owned by the Company or a Restricted Subsidiary that is a Consolidated
Subsidiary of the Company, (y) all outstanding net Investments as of such date
in unconsolidated Restricted Subsidiaries and in Persons that are not Restricted
Subsidiaries (except, in each such case, Permitted Investments), and (z) all
unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Consolidated Subsidiary" means, for any Person, each
Restricted Subsidiary of such Person (whether now existing or hereafter created
or acquired) the financial statements of which are consolidated for financial
statement reporting purposes with the financial statements of such Person in
accordance with GAAP.
"Continuing Directors" means individuals who at the beginning
of the period of determination constituted the Board of Directors of the
Company, together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the Company
was approved by a vote of a majority of the directors of the Company then still
in office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved or is the
designee of any one of the Permitted Holders or any combination thereof or was
nominated or elected by any such Permitted Holder(s) or any of their designees.
"Corporate Trust Office of the Trustee" shall be at the
address of the Trustee specified in Section 12.02 hereof or such other address
as to which the Trustee may give notice to the Company.
"Credit Agreement" means one or more credit agreements, loan
agreements or similar facilities, secured or unsecured, entered into from time
to time by the Company and its Restricted Subsidiaries, and including any
related notes, Guarantees, collateral documents, instruments and agreements
executed in connection therewith, as the same may be amended, supplemented,
modified, restated or replaced from time to time.
"Currency Agreement" means, with respect to any Person, any
foreign exchange contract, currency swap agreement or other similar agreement as
to which such Person is a party or beneficiary.
"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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"Definitive Note" means a certificated Note registered in the
name of the Holder thereof and issued in accordance with Section 2.06 hereof, in
the form of Exhibit A-1 hereto except that such Note shall not bear the Global
Note Legend and shall not have the "Schedule of Exchanges of Interests in the
Global Note" attached thereto, but may bear the Private Placement Legend, if
applicable.
"Depositary" means, with respect to the Notes issuable or
issued in whole or in part in global form, the Person specified in Section 2.03
hereof as the Depositary with respect to the Notes, and any and all successors
thereto appointed as depositary hereunder and having become such pursuant to the
applicable provision of this Indenture.
"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, in each case at the option of the holder thereof), 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; provided, however, that any Capital
Stock that would constitute Disqualified Stock solely because the holders
thereof have the right to require the Company to repurchase such Capital Stock
upon the occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Company
may not repurchase or redeem any such Capital Stock pursuant to such provisions
unless such repurchase or redemption complies with Section 4.07 hereof.
"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).
"Euroclear" means Morgan Guaranty Trust Company of New York,
Brussels office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended (or any successor Act), and the rules and regulations promulgated
thereunder (or respective successor thereto).
"Exchange Notes" means the Series B Notes issued in the
Exchange Offer pursuant to Section 2.06(f) hereof.
"Exchange Offer" has the meaning set forth in the Registration
Rights Agreement.
"Exchange Offer Registration Statement" has the meaning set
forth in the Registration Rights Agreement.
"Exchanging Dealer" has the meaning set forth in the
Registration Rights Agreement.
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"Existing Assets" means property, plant and equipment and
other tangible business assets existing as of the Issue Date used in a
Telecommunications Business of the Company, but does not include cash or Cash
Equivalents existing on the Issue Date, and the proceeds from the sale,
disposition or other transfer of any Existing Assets outside the ordinary course
of business.
"Existing Indebtedness" means Indebtedness of the Company and
its Restricted Subsidiaries in existence on the Issue Date, until such amounts
are repaid.
"Foreign Subsidiary" means any Restricted Subsidiary of the
Company which (i) is not organized under the laws of the United States, any
state thereof or the District of Columbia, and (ii) conducts substantially all
of its business operations outside the United States of America.
"Foreign Subsidiary Credit Agreement" means one or more credit
agreements, loan agreements or similar facilities, secured or unsecured, entered
into from time to time by one or more of the Company's Foreign Subsidiaries, and
including any related notes, Guarantees, collateral documents, instruments and
agreements executed in connection therewith, as the same may be amended,
supplemented, modified, restated or replaced from time to time.
"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 Issue Date.
"German Joint Venture" means the Person(s) formed or organized
to engineer, develop, construct and own a fiber optic telecommunications network
in Germany.
"Global Note Legend" means the legend set forth in Section
2.06(g)(ii), which is required to be placed on all Global Notes issued under
this Indenture.
"Global Notes" means, individually and collectively, each of
the Restricted Global Notes and the Unrestricted Global Notes, in the form of
Exhibit A-1 or A-2 hereto issued in accordance with Section 2.01, 2.06(b)(iv),
2.06(d)(ii) or 2.06(f) hereof and bearing the Global Note Legend.
"Government Securities" means securities that are (a) direct
obligations (or certificates representing an ownership interest in such
obligations) of the United States of America (including any agency or
instrumentality thereof) of the payment of which the full faith and credit of
the United States of America is pledged, (b) obligations of a Person controlled
or supervised by and acting as an agency or instrumentality of the United States
of America the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America or (c) obligations of a
Person the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America.
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"Guarantee" means any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness of any other
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such other Person (whether arising by virtue of
partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness of the payment thereof or
to protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under any Interest Rate Agreement or Currency
Agreement.
"Holder" means a Person in whose name a Note is registered on
the Registrar's or any co-registrar's books.
"Indebtedness" 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 banker's
acceptances or representing Capital Lease Obligations or the balance of the
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 (other than letters
of credit (or reimbursement agreements in respect thereof), banker's acceptances
and Hedging Obligations) would appear as a liability upon a balance sheet of
such Person prepared in accordance with GAAP, as well as all Indebtedness of
others secured by a Lien on any asset of such Person (whether or not such
Indebtedness is assumed by such Person), Disqualified Stock of such Person and
Preferred Stock of such Person's Restricted Subsidiaries and, to the extent not
otherwise included, the Guarantee 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 issued with
original issue discount, but the accretion of original issue discount in
accordance with the original terms of Indebtedness issued with an original issue
discount will not be deemed to be an incurrence, 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.
"Indirect Participant" means a Person who holds a beneficial
interest in a Global Note through a Participant.
"Initial Purchaser" shall have the meaning assigned to such
term in the Offering Memorandum.
"Interest Payment Date" shall have the meaning assigned to
such term in the Notes.
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"Interest Rate Agreement" means, with respect to any Person,
any interest rate protection agreement, interest rate future agreement, interest
rate option agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge agreement or
other similar agreement or arrangement to which such Person is a party or
beneficiary.
"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 directors, 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. If the Company or any of its Restricted Subsidiaries sells
or otherwise disposes of any Equity Interests of any direct or indirect
Subsidiary such that, after giving effect to any such sale or disposition, such
Person is no longer a Subsidiary of the Company or such Restricted Subsidiary,
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 final paragraph of Section 4.07 hereof.
"ION" means International Optical Network, L.L.C., a Delaware
limited liability company.
"Issue Date" means the date of first issuance of the Notes
under the Indenture.
"Legal Holiday" means a Saturday, a Sunday or a day on which
banking institutions in the City of New York or at a place of payment are
authorized 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 on such payment for the intervening period.
"Letter of Transmittal" means the letter of transmittal to be
prepared by the Company and sent to all Holders of the Notes for use by such
Holders in connection with the Exchange Offer.
"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" shall have the meaning specified in the
Notes.
"Management Advances" means loans or advances made to
directors, officers or employees of the Company or any Restricted Subsidiary (i)
in respect of travel, entertainment or
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moving-related expenses incurred in the ordinary course of business, (ii) in
respect of moving-related expenses incurred in connection with any closing or
consolidation of any facility, or (iii) otherwise in the ordinary course of
business not exceeding $3.0 million in the aggregate at any time outstanding.
"Management Agreement" means the management agreement between
the Company and Metromedia Company, dated as of January 2, 1998, as the same may
be amended, supplemented, modified, restated or replaced from time to time with
the approval of a majority of the disinterested members of the Board of
Directors.
"Net Cash Proceeds" means the aggregate amount of cash or Cash
Equivalents received by the Company in the case of a sale, or Capital
Contribution in respect, of Capital Stock and by the Company and its Restricted
Subsidiaries in respect of an Asset Sale plus, in the case of an issuance of
Capital Stock upon any exercise, exchange or conversion of securities (including
options, warrants, rights and convertible or exchangeable debt) of the Company
that were issued for cash on or after the Issue Date, the amount of cash
originally received by the Company upon the issuance of such securities
(including options, warrants, rights and convertible or exchangeable debt) less,
in each case, the sum of all payments, fees, commissions and reasonable and
customary expenses (including, without limitation, the fees and expenses of
legal counsel and investment banking fees and expenses) incurred in connection
with such Asset Sale or sale of Capital Stock, and, in the case of an Asset Sale
only, less the amount (estimated reasonably and in good faith by the Company) of
income, franchise, sales and other applicable federal, state, provincial,
foreign or local taxes required to be paid or accrued as a liability by the
Company or any of its respective Restricted Subsidiaries in connection with such
Asset Sale in the taxable year that such sale is consummated or in the
immediately succeeding taxable year, the computation of which shall take into
account the reduction in tax liability resulting from any available operating
losses and net operating loss carryovers, tax credits and tax credit
carryforwards, and similar tax attributes.
"Net Income" means, with respect to any Person, the net income
(loss) of such Person, 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 or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary gain or loss, together
with any related provision for taxes on such extraordinary gain or loss.
"Non-Recourse Debt" means Indebtedness (i) as to which neither
the Company nor any Restricted Subsidiary (a) provides any Guarantee or credit
support of any kind (including any undertaking, guarantee, indemnity, agreement
or instrument that would constitute Indebtedness) or (b) is directly or
indirectly liable (as a guarantor or otherwise) and (ii) no default with respect
to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any Restricted Subsidiary to declare a default under such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its Stated Maturity.
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"Non-U.S. Person" means a Person who is not a U.S. Person.
"Note Custodian" means the Person specified in Section 2.03
hereof as the Note Custodian with respect to the Global Notes or any successor
entity thereto appointed as Note Custodian hereunder and having become such
pursuant to the applicable provision of this Indenture.
"Notes" has the meaning assigned to it in the preamble to this
Indenture.
"Offering Memorandum" means the Offering Memorandum, dated
November 20, 1998, pursuant to which the Series A Notes were offered and sold.
"Officer" means the President, the Chief Executive Officer,
any Executive Vice President and the Chief Financial Officer of the Company.
"Officers' Certificate" means a certificate signed by two
Officers.
"Opinion of Counsel" means an opinion from legal counsel who
is reasonably acceptable to the Trustee and that meets the requirements of
Section 12.05 hereof. The counsel may be an employee of or counsel to the
Company, any subsidiary of the Company, any Affiliate of the Company or the
Trustee.
"pari passu Indebtedness" means Indebtedness of the Company
ranking pari passu in right of payment with the Notes.
"Participant" means, with respect to the Depositary, Euroclear
or CEDEL Bank, a Person who has an account with the Depositary, Euroclear or
CEDEL Bank, respectively (and, with respect to The Depositary Trust Company,
shall include Euroclear and CEDEL Bank).
"Permitted Holder" means Metromedia Company, its general
partners and their respective Related Persons and Persons that would constitute
a Class B Permitted Holder as defined in the Company's Amended and Restated
Certificate of Incorporation.
"Permitted Investments" means (a) any Investment in the
Company or in a Consolidated Subsidiary of the Company that is engaged entirely
or substantially entirely in a Telecommunications Business; (b) any Investment
in Cash Equivalents; (c) any Guarantee of Indebtedness of the Company or a
Restricted Subsidiary to the extent such Indebtedness is permitted under Section
4.09 hereof; and (d) any Investment by the Company or any of its Restricted
Subsidiaries in a Person, if as a result of such Investment (i) such Person
becomes a Consolidated Subsidiary of the Company that is engaged entirely or
substantially entirely in a Telecommunications Business or (ii) 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
Consolidated Subsidiary of the Company that is engaged entirely or substantially
entirely in a Telecommunications Business.
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"Permitted Liens" means (i) Liens to secure Indebtedness
permitted by clauses (e), (f), (g) and (h) of the second paragraph of Section
4.09 hereof or any Permitted Refinancing Indebtedness, provided that with
respect to Liens to secure Indebtedness permitted by clause (f) thereof or any
Permitted Refinancing Indebtedness of such Indebtedness, such Lien must cover
only the assets acquired with such Indebtedness; (ii) Liens in favor of the
Company or any Restricted Subsidiary; (iii) Liens on property of a Person
existing at the time such Person is merged with or into or consolidated with the
Company or any of its Restricted 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 such Restricted Subsidiary; (iv) Liens on property existing
at the time of acquisition thereof by the Company or any of its Restricted
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 existing on the Issue Date; (vii) 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;
(viii) zoning restrictions, rights-of-way, easements and similar charges or
encumbrances incurred in the ordinary course which in the aggregate do not
detract from the value of the property thereof, and (ix) Liens incurred in the
ordinary course of business of the Company or any of its Restricted Subsidiaries
with respect to obligations that do not exceed $5.0 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 such Restricted Subsidiary.
"Permitted Refinancing Indebtedness" means any Indebtedness of
the Company or any of its Restricted 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 of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that: (i) the principal amount
(or accreted value, if applicable) of such Permitted Refinancing Indebtedness
does not exceed the principal amount of (or accreted value, if applicable), plus
accrued interest on, the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of any premium required to be
paid in connection with such refinancing pursuant to the terms of such
Indebtedness or otherwise reasonably determined by the Company to be necessary
and reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date later 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
Indebtedness has a final maturity date later than the final maturity date of,
and is expressly subordinated in right of payment to, the Notes on terms at
least as favorable to the Holders of the Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (iv) such
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Indebtedness is incurred solely by the Company or the Restricted Subsidiary who
is the obligor on the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (v) such Indebtedness is secured only by the
assets, if any, that secured the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, incorporated or unincorporated association,
joint-stock company, trust, unincorporated organization or government or other
agency or political subdivision thereof or other entity of any kind.
"Pledged Securities" means the securities purchased by the
Company with a portion of the net proceeds from the initial offer and sale by
the Company of the Series A Notes, which shall consist of Government Securities,
to be deposited in the Security Account.
"Preferred Stock" means any Equity Interest of any class or
classes of a Person (however designated) which is preferred as to payments of
dividends, or as to distributions upon any liquidation or dissolution, over
Equity Interests of any other class of such Person.
"Private Placement Legend" means the legend set forth in
Section 2.06(g)(i) to be placed on all Notes issued under this Indenture except
where otherwise permitted by the provisions of this Indenture.
"Public Equity Offering" means an underwritten offering of
common stock of the Company for cash pursuant to an effective registration
statement under the Securities Act.
"Purchase Money Indebtedness" means Indebtedness (including
Acquired Debt, in the case of leases, Capital Lease Obligations, mortgage
financings and purchase money obligations) incurred for the purpose of financing
all or any part of the cost of the engineering, construction, installation,
acquisition, lease (other than pursuant to a sale and leaseback of Existing
Assets), development or improvement of any Telecommunications Assets used by the
Company or any Restricted Subsidiary, in the case of Indebtedness incurred by
the Company, or any Foreign Subsidiary in the case of Indebtedness incurred by
any Foreign Subsidiary, including any related notes, Guarantees, collateral
documents, instruments and agreements executed in connection therewith, as the
same may be amended, supplemented, modified or restated from time to time.
"QIB" means a "qualified institutional buyer" as defined in
Rule 144A.
"Record Date" for the interest payable on any Interest Payment
Date means the May 1 or November 1 (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date hereof, by and among the Company and the other
parties named on the signature pages thereof, as such agreement may be amended,
modified or supplemented from time to time.
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"Registration Statement" means either the Exchange Offer
Registration Statement or the Shelf Registration Statement.
"Regulation S" means Regulation S promulgated under the
Securities Act.
"Regulation S Global Note" means a Regulation S Temporary
Global Note or Regulation S Permanent Global Note, as appropriate.
"Regulation S Permanent Global Note" means a permanent Global
Note in the form of Exhibit A-1 hereto bearing the Global Note Legend and the
Private Placement Legend and deposited with or on behalf of and registered in
the name of the Depositary or its nominee, issued in a denomination equal to the
outstanding aggregate principal amount of the Regulation S Temporary Global Note
upon expiration of the Restricted Period.
"Regulation S Temporary Global Note" means a temporary Global
Note in the form of Exhibit A-2 hereto bearing the Global Note Legend and the
Private Placement Legend and deposited with or on behalf of and registered in
the name of the Depositary or its nominee, issued in a denomination equal to the
outstanding aggregate principal amount of the Notes initially sold in reliance
on Rule 903 of Regulation S.
"Related Person" means any Person who controls, is controlled
by or is under common control with a Permitted Holder; provided, that for
purposes of this definition "control" means the beneficial ownership of more
than 50% of the total voting power of a Person normally entitled to vote in the
election of directors, managers or trustees, as applicable, of a Person.
"Responsible Officer," when used with respect to the Trustee,
means any officer within the Corporate Trust Administration 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
designated 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 Definitive Note" means a Definitive Note bearing
the Private Placement Legend.
"Restricted Global Note" means a Global Note bearing the
Private Placement Legend and includes 144A Global Notes and Regulation S Global
Notes.
"Restricted Investment" means any Investment other than a
Permitted Investment.
"Restricted Note" means either a Restricted Definitive Note or
a Restricted Global Note.
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<PAGE>
"Restricted Period" means the 40-day distribution compliance
period as defined in Regulation S.
"Restricted Subsidiary" of a Person means any Subsidiary of
the referent Person that is not an Unrestricted Subsidiary. Unless the context
specifically requires otherwise, Restricted Subsidiary means a direct or
indirect Restricted Subsidiary of the Company.
"Rule 144" means Rule 144 promulgated under the Securities
Act.
"Rule 144A" means Rule 144A promulgated under the Securities
Act.
"Rule 903" means Rule 903 promulgated under the Securities
Act.
"Rule 904" means Rule 904 promulgated under the Securities
Act.
"SEC" means the Securities Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended
(or any successor Act), and the rules and regulations promulgated thereunder (or
respective successor thereto).
"Securities Intermediary" means IBJ Schroder Bank & Trust
Company, in its capacity as securities intermediary pursuant to the Security
Agreement.
"Security Account" means an account established with the
Securities Intermediary by the Trustee pursuant to the terms of the Security
Agreement for the deposit of the Pledged Securities.
"Security Agreement" means the Security Agreement dated as of
the Issue Date, by and among the Company, the Trustee and the Securities
Intermediary, governing the disbursement of funds from the Security Account, as
the same may be amended, modified or supplemented from time to time.
"Shelf Registration Statement" means the Shelf Registration
Statement as defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Restricted Subsidiary that
would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of
Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect
on the date hereof.
"Special Record Date" for the payment of any Defaulted
Interest means a date fixed by the Trustee pursuant to Section 2.12 hereof.
"Stated Maturity" means, with respect to any installment of
interest or principal (including any mandatory sinking fund payment of interest
or principal) on any series of
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Indebtedness, the date on which such payment of interest or principal (including
any mandatory sinking fund payment of interest or principal) was scheduled to be
paid in the original documentation governing such Indebtedness, and shall not
include any contingent obligations to repay, redeem or repurchase any such
interest or principal prior to the date originally scheduled for the payment
thereof.
"Subordinated Indebtedness" means Indebtedness of the Company
that is subordinated in right of payment by its terms or the terms of any
document or instrument or instrument relating thereto to the Notes, in any
respect.
"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 that 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 or of one or
more Subsidiaries of such Person (or any combination thereof).
"Telecommunications Assets" means all assets, rights
(contractual or otherwise) and properties, whether tangible or intangible, used
or intended for use in connection with a Telecommunications Business and the
Equity Interests of a Person engaged entirely or substantially entirely in a
Telecommunications Business.
"Telecommunications Business" means the business of (i)
transmitting, or providing services relating to the transmission of, voice,
video or data through owned or leased transmission facilities, (ii)
constructing, 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 primarily 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 Directors of the Company.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) as in effect on the date on which this Indenture is
qualified under the TIA, except as set forth in Section 9.03.
"Trustee" means the party named as such above until a
successor replaces it in accordance with the applicable provisions of this
Indenture and thereafter means the successor serving hereunder.
"Unrestricted Definitive Note" means one or more Definitive
Notes that do not bear and are not required to bear the Private Placement
Legend.
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"Unrestricted Global Note" means a permanent Global Note in
the form of Exhibit A-1 attached hereto that bears the Global Note Legend and
that has the "Schedule of Exchanges of Interests in the Global Note" attached
thereto, and that is deposited with or on behalf of and registered in the name
of the Depositary, representing a series of Notes that do not bear the Private
Placement Legend.
"Unrestricted Subsidiary" means (i) any Subsidiary of the
Company that is designated by the Board of Directors as an Unrestricted
Subsidiary pursuant to a Board Resolution; but only to the extent that such
Subsidiary at the time of such designation: (a) has no Indebtedness other than
Non-Recourse Debt; (b) is a Person with respect to which neither the Company nor
any of its Restricted Subsidiaries has any direct or indirect obligation to
maintain or preserve such Person's financial condition or to cause such Person
to achieve any specified levels of operating results; and (c) has not Guaranteed
or otherwise directly or indirectly provided credit support for any Indebtedness
of the Company or any of its Restricted Subsidiaries. Any such designation by
the Board of Directors shall be evidenced by filing with the Trustee a certified
copy of the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions and was permitted by the covenant described under Section 4.07
hereof. The Board of Directors of the Company may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (i) such Indebtedness
is permitted under the covenant described under Section 4.09 hereof calculated
on a pro forma basis as if such designation had occurred at the beginning of the
applicable reference period, and (ii) no Default or Event of Default would be in
existence following such designation.
"U.S. Person" means a U.S. person as defined in Rule 902(o)
under the Securities Act.
"Voting Stock" of any Person as of any date means the Capital
Stock of such Person that is at the time entitled to vote in the election of the
Board of Directors of such Person.
"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 Restricted Subsidiary" of any Person means a
Restricted 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 or by one or more Wholly Owned
Restricted Subsidiaries of such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
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<PAGE>
SECTION 1.2 OTHER DEFINITIONS.
<TABLE>
<CAPTION>
Defined in
Term Section
---- ----------
<S> <C>
"Affiliate Transaction" ...................................................................... 4.11
"Asset Sale Offer" ........................................................................... 4.10
"Authentication Order" ....................................................................... 2.02
"Change of Control Offer" .................................................................... 4.14
"Change of Control Payment" .................................................................. 4.14
"Change of Control Payment Date" ............................................................. 4.14
"Covenant Defeasance" ........................................................................ 8.03
"Designation" ................................................................................ 4.07
"Event of Default" ........................................................................... 6.01
"Excess Proceeds" ............................................................................ 4.10
"incur" ...................................................................................... 4.09
"Legal Defeasance" ........................................................................... 8.02
"Offer Amount " .............................................................................. 3.09
"Offer Period" ............................................................................... 3.09
"Paying Agent " .............................................................................. 2.03
"Permitted Indebtedness" ..................................................................... 4.09
"Purchase Date" .............................................................................. 3.09
"Registrar " ................................................................................. 2.03
"Restricted Payments" ........................................................................ 4.07
"Revocation" ................................................................................. 4.07
</TABLE>
SECTION 1.3 TRUST INDENTURE ACT DEFINITIONS
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 a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee; and
"obligor" on the Notes means the Company and any successor
obligor upon the Notes.
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All other terms used but not otherwise defined 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;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and 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 shall be deemed to include substitute, replacement of
successor sections or rules adopted by the SEC from time to time.
ARTICLE 2.
THE NOTES
SECTION 2.1 FORM AND DATING.
(a) General.
The Notes and the Trustee's certificate of authentication
shall be substantially in the form of Exhibits A-1 and A-2 hereto. The Notes may
have notations, legends or endorsements required by law, stock exchange rule or
usage or agreements to which the Company is subject. Each Note shall be dated
the date of its authentication. The Notes shall be in denominations of $1,000
and integral multiples thereof.
The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Indenture and the Company and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby. However, to the extent any
provision of any Note conflicts with the express provisions of this Indenture,
the provisions of this Indenture shall govern and be controlling.
(b) Global Notes.
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Notes issued in global form shall be substantially in the form
of Exhibits A-1 or A-2 attached hereto (including the Global Note Legend thereon
and the "Schedule of Exchanges of Interests in the Global Note" attached
thereto). Notes issued in definitive form shall be substantially in the form of
Exhibit A-1 attached hereto (but without the Global Note Legend thereon and
without the "Schedule of Exchanges of Interests in the Global Note" attached
thereto). Each Global Note shall represent such of the aggregate principal
amount of the outstanding Notes as shall be specified therein and each shall
provide that it shall represent the aggregate principal amount of outstanding
Notes from time to time endorsed thereon and that the aggregate principal amount
of outstanding Notes represented thereby may from time to time be reduced or
increased, as appropriate, to reflect exchanges, repurchases and redemptions.
Any endorsement of a Global Note to reflect the amount of any increase or
decrease in the aggregate principal amount of outstanding Notes represented
thereby shall be made by the Trustee or the Note Custodian, at the direction of
the Trustee, in accordance with instructions given by the Holder thereof as
required by Section 2.06 hereof.
(c) Temporary Global Notes.
Notes offered and sold in reliance on Regulation S shall be
issued initially in the form of the Regulation S Temporary Global Notes, which
shall be deposited on behalf of the purchasers of the Notes represented thereby
with the Trustee, at the Corporate Trust Office of the Trustee, as custodian for
the Depositary, registered in the name of the Depositary or the nominee of the
Depositary for the accounts of designated agents holding on behalf of Euroclear
or CEDEL Bank, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. Upon termination of the Restricted Period and the receipt
by the Trustee of (i) a written certificate from the Depositary, together with
copies of certificates from Euroclear and CEDEL Bank certifying that they have
received certification of non-United States beneficial ownership of 100% of the
aggregate principal amount of the Regulation S Temporary Global Note (except to
the extent of any beneficial owners thereof who acquired an interest therein
during the Restricted Period pursuant to another exemption from registration
under the Securities Act and who will take delivery of a beneficial ownership
interest in a 144A Global Note bearing a Private Placement Legend, all as
contemplated by Section 2.06(b)(iii) hereof), and (ii) an Officers' Certificate
from the Company, beneficial interests in the Regulation S Temporary Global Note
shall be exchanged for beneficial interests in Regulation S Permanent Global
Notes pursuant to the Applicable Procedures. Simultaneously with the
authentication of Regulation S Permanent Global Notes, the Trustee shall, upon
direction of the Company, cancel the Regulation S Temporary Global Note. The
aggregate principal amount of the Regulation S Temporary Global Note and the
Regulation S Permanent Global Notes may from time to time be increased or
decreased by adjustments made on the records of the Trustee and the Depositary
or its nominee, as the case may be, in connection with transfers of interest as
hereinafter provided.
(d) Euroclear and CEDEL Bank Procedures Applicable.
The provisions of the "Operating Procedures of the Euroclear
System" and "Terms and Conditions Governing Use of Euroclear" and the "General
Terms and Conditions of CEDEL
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<PAGE>
Bank" and "Customer Handbook" of CEDEL Bank shall be applicable to transfers of
beneficial interests in the Regulation S Temporary Global Note and the
Regulation S Permanent Global Notes that are held by Participants through
Euroclear or CEDEL Bank.
SECTION 2.2 EXECUTION AND AUTHENTICATION.
Two Officers or one Officer and the Secretary or an Assistant
Secretary of the Company shall sign the Notes for the Company by manual or
facsimile signature.
If an Officer, Secretary or Assistant Secretary whose
signature is on a Note no longer holds that office at the time a Note is
authenticated, the Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Note has been authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed
by two Officers or one officer and the Secretary or an Assistant Secretary of
the Company (an "Authentication Order"), authenticate Notes for original issue
up to the aggregate principal amount stated in paragraph 4 of the Notes. The
aggregate principal amount of Notes outstanding at any time may not exceed such
amount except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to
the Company to authenticate Notes. An authenticating agent may 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 rights as an Agent to deal with Holders or an
Affiliate of the Company.
SECTION 2.3 REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency where Notes may
be presented for registration of transfer or for exchange ("Registrar", which
term shall also include any co-registrar) and an office or agency where Notes
may be presented for payment ("Paying Agent"). 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 agent. The Company may change any Paying Agent or
Registrar without notice to any Holder. The Company shall notify the Trustee in
writing 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. The Company or any of its Subsidiaries may
act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company
("DTC") to act as Depositary with respect to the Global Notes.
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<PAGE>
The Company initially appoints the Trustee to act as the
Registrar and Paying Agent and to act as Note Custodian with respect to the
Global Notes.
The Trustee is authorized to enter into a letter of
representations with DTC in the form provided to the Trustee by the Company and
to act in accordance with such letter.
SECTION 2.4 PAYING AGENT TO HOLD MONEY 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 money held by the Paying Agent for the
payment of principal, premium or Liquidated Damages, if any, or interest on the
Notes, and will notify the Trustee of any default by the Company in making any
such payment. While any such default continues, the Trustee may require a Paying
Agent to pay all such money held by it to the Trustee. The Company at any time
may require a Paying Agent to pay all such money held by it to the Trustee. Upon
payment over to the Trustee, the Paying Agent (if other than the Company or a
Subsidiary) shall have no further liability for the money. If the Company or a
Subsidiary 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. Upon
any bankruptcy or reorganization proceedings relating to the Company, the
Trustee shall serve as Paying Agent for the Notes.
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 all Holders and shall otherwise comply with TIA Section 312(a). If
the Trustee is not the Registrar, the Company shall furnish to the Trustee at
least seven Business Days before each Interest Payment 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 the
Holders of Notes and the Company shall otherwise comply with TIA Section 312(a).
SECTION 2.6 TRANSFER AND EXCHANGE.
(a) Transfer and Exchange of Global Notes.
A Global Note may not be transferred as a whole except by the
Depositary to a nominee of the Depositary, by a nominee of the Depositary to the
Depositary or to another nominee of the Depositary, by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. All Global Notes will be exchanged by the Company for Definitive
Notes if (i) the Company delivers to the Trustee a notice from the Depositary
that it is unwilling or unable to continue to act as Depositary or that it is no
longer a clearing agency registered under the Exchange Act and, in either case,
a successor Depositary is not appointed by the Company within 120 days after the
date of such notice from the Depositary or (ii) the Company in its sole
discretion determines that the Global Notes (in whole but not in part) should be
exchanged for Definitive Notes and delivers a written notice to such effect to
the Trustee; provided that in no event shall the
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Regulation S Temporary Global Note be exchanged by the Company for Definitive
Notes prior to (x) the expiration of the Restricted Period and (y) the receipt
by the Registrar of any certificates determined by the Company to be required
pursuant to Rule 903(c)(3)(ii)(B) under the Securities Act. Upon the occurrence
of either of the preceding events in (i) or (ii) above, Definitive Notes shall
be issued in such names as the Depositary shall instruct the Trustee. Global
Notes also may be exchanged or replaced, in whole or in part, as provided in
Sections 2.07 and 2.10 hereof. Every Note authenticated and delivered in
exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to
this Section 2.06 or Section 2.07 or 2.10 hereof, shall be authenticated and
delivered in the form of, and shall be, a Global Note. A Global Note may not be
exchanged for another Note other than as provided in this Section 2.06(a),
however, beneficial interests in a Global Note may be transferred and exchanged
as provided in Section 2.06(b), (c) or (f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global Notes.
The transfer and exchange of beneficial interests in the
Global Notes shall be effected through the Depositary, in accordance with the
provisions of this Indenture and the Applicable Procedures. Beneficial interests
in the Restricted Global Notes shall be subject to restrictions on transfer
comparable to those set forth herein and therein to the extent required by the
Securities Act. Transfers of beneficial interests in the Global Notes also shall
require compliance with either subparagraph (i) or (ii) below, as applicable, as
well as one or more of the other following subparagraphs, as applicable:
(i) Transfer of Beneficial Interests in the Same Global Note.
Beneficial interests in any Restricted Global Note may be transferred
to Persons who take delivery thereof in the form of a beneficial
interest in the same Restricted Global Note in accordance with the
transfer restrictions set forth in the Private Placement Legend;
provided, however, that prior to the expiration of the Restricted
Period, transfers of beneficial interests in the Temporary Regulation S
Global Note may not be made to a U.S. Person or for the account or
benefit of a U.S. Person (other than an Initial Purchaser or to a
transferee who will take delivery of a beneficial ownership interest in
a 144A Global Note bearing a Private Placement Legend in accordance
with Section 2.06(b)(iii) hereof). Beneficial interests in any
Unrestricted Global Note may be transferred to Persons who take
delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note. No written orders or instructions shall be
required to be delivered to the Registrar to effect the transfers
described in this Section 2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests
in Global Notes. In connection with all transfers and exchanges of
beneficial interests that are not subject to Section 2.06(b)(i) above,
the transferor of such beneficial interest must deliver to the
Depositary either (A) (1) a written order from a Participant or an
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<PAGE>
Indirect Participant given to the Depositary in accordance with the
Applicable Procedures directing the Depositary to credit or cause to be
credited a beneficial interest in another Global Note in an amount
equal to the beneficial interest to be transferred or exchanged and (2)
instructions given in accordance with the Applicable Procedures
containing information regarding the Participant account to be credited
with such increase or (B) (1) a written order from a Participant or an
Indirect Participant given to the Depositary in accordance with the
Applicable Procedures directing the Depositary to cause to be issued a
Definitive Note in an amount equal to the beneficial interest to be
transferred or exchanged and (2) instructions given by the Depositary
to the Registrar containing information regarding the Person in whose
name such Definitive Note shall be registered to effect the transfer or
exchange referred to in (1) above, provided that in no event shall
Definitive Notes be issued upon the transfer or exchange of beneficial
interests in the Regulation S Temporary Global Note prior to (x) the
expiration of the Restricted Period and (y) the receipt by the
Registrar of any certificates determined by the Company to be required
pursuant to Rule 903 under the Securities Act. Upon consummation of an
Exchange Offer by the Company in accordance with Section 2.06(f)
hereof, the requirements of this Section 2.06(b)(ii) shall be deemed to
have been satisfied upon receipt by the Registrar of the instructions
contained in the Letter of Transmittal delivered by the Holder of such
beneficial interests in the Restricted Global Notes. Upon satisfaction
of all of the requirements for transfer or exchange of beneficial
interests in Global Notes contained in this Indenture and the Notes or
otherwise applicable under the Securities Act, the Trustee
shall adjust the principal amount of the relevant Global Note(s)
pursuant to Section 2.06(h) hereof.
(iii) Transfer of Beneficial Interests to Another Restricted
Global Note. A beneficial interest in any Restricted Global Note may be
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in another Restricted Global Note if the transfer
complies with the requirements of Section 2.06(b)(ii) above and the
Registrar receives the following:
(A) if the transferee will take delivery in the form
of a beneficial interest in the 144A Global Note, then the
transferor must deliver a certificate in the form of Exhibit B
hereto, including the certifications in item (1) thereof; and
(B) if the transferee will take delivery in the form
of a beneficial interest in the Regulation S Temporary Global
Note or the Regulation S Global Note, then the transferor must
deliver a certificate in the form of Exhibit B hereto,
including the certifications in item (2) thereof.
(iv) Transfer and Exchange of Beneficial Interests in a
Restricted Global Note for Beneficial Interests in the Unrestricted
Global Note. A beneficial interest in any Restricted Global Note may be
exchanged by any holder thereof for a beneficial interest in an
Unrestricted Global Note transferred to a Person who takes delivery
thereof in the form of a beneficial interest in a Unrestricted Global
Note if the exchange or transfer complies with the requirements of
Section 2.06(b)(ii) above and:
(A) such exchange or transfer is effected pursuant to
the Exchange Offer in accordance with the Registration Rights
Agreement and the holder of the beneficial interest to be
transferred, in the case of an exchange, or the
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<PAGE>
transferee, in the case of a transfer, makes the certification
required by Section 2(e) of the Registration Rights Agreement
in the applicable Letter of Transmittal or via the
Depositary's book-entry system;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration
Rights Agreement;
(C) such transfer is effected by an Exchanging Dealer
pursuant to the Exchange Offer Registration Statement in
accordance with, the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in
a Restricted Global Note proposes to exchange such beneficial interest
for a beneficial interest in an Unrestricted Global Note, a certificate
from such holder in the form of Exhibit C hereto, including the
certifications in item (1)(a) thereof; or
(2) if the holder of such beneficial interest in
a Restricted Global Note proposes to transfer such beneficial interest
to a Person who shall take delivery thereof in the form of a beneficial
interest in an Unrestricted Global Note, a certificate from such holder
in the form of Exhibit B hereto, including the certifications in item
(3)(c) or (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Company or the Registrar so requests or if the Applicable Procedures so
require, an Opinion of Counsel in form reasonably acceptable to the
Company or the Registrar, as applicable, to the effect that such
exchange or transfer is in compliance with the Securities Act and that
the restrictions on transfer contained herein and in the Private
Placement Legend are no longer required in order to maintain compliance
with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B)
or (D) above at a time when an Unrestricted Global Note has not yet been issued,
the Company shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
aggregate principal amount of beneficial interests transferred pursuant to
subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Note cannot be
exchanged for, or transferred to Persons who take delivery thereof in the form
of, a beneficial interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests for Definitive Notes.
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(i) Beneficial Interests in Restricted Global Notes to
Restricted Definitive Notes. If any holder of a beneficial interest in
a Restricted Global Note proposes to exchange such beneficial interest
for a Restricted Definitive Note or to transfer such beneficial
interest to a Person who takes delivery thereof in the form of a
Restricted Definitive Note, then, upon receipt by the Registrar of the
following documentation:
(A) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a Restricted Definitive Note, a certificate from
such holder in the form of Exhibit C hereto, including the
certifications in item (2)(a) thereof;
(B) if such beneficial interest is being transferred
to a QIB in accordance with Rule 144A, a certificate to the
effect set forth in Exhibit B hereto, including the
certifications in item (1) thereof;
(C) if such beneficial interest is being transferred
to a Non-U.S. Person in an offshore transaction in accordance
with Rule 903 or Rule 904, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in
item (2) thereof;
(D) if such beneficial interest is being transferred
pursuant to an exemption from the registration requirements of
the Securities Act in accordance with Rule 144, a certificate
to the effect set forth in Exhibit B hereto, including the
certifications in item (3)(a) thereof; or
(E) if such beneficial interest is being transferred
to the Company or any of its Subsidiaries, a certificate to
the effect set forth in Exhibit B hereto, including the
certifications in item (3)(b) thereof,
upon confirmation of such receipt, the Trustee shall cause the
aggregate principal amount of the applicable Global Note to be
reduced accordingly pursuant to Section 2.06(h) hereof, and the
Company shall execute and the Trustee shall authenticate and deliver
to the Person designated in the instructions a Definitive Note in
the appropriate principal amount. Any Definitive Note issued in
exchange for a beneficial interest in a Restricted Global Note
pursuant to this Section 2.06(c) shall be registered in such name or
names and in such authorized denomination or denominations as the
holder of such beneficial interest shall instruct the Registrar
through instructions from the Depositary and the Participant or
Indirect Participant. The Trustee shall make available for delivery
such Definitive Notes to the Persons in whose names such Notes are
so registered. Any Definitive Note issued in exchange for a
beneficial interest in a Restricted Global Note pursuant to this
Section 2.06(c)(i) shall bear the Private Placement Legend and shall
be subject to all restrictions on transfer contained therein.
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(ii) Notwithstanding Sections 2.06(c)(i)(A) and (C) hereof, a
beneficial interest in the Regulation S Temporary Global Note may not
be exchanged for a Definitive Note or transferred to a Person who takes
delivery thereof in the form of a Definitive Note prior to (x) the
expiration of the Restricted Period and (y) the receipt by the
Registrar of any certificates determined by the Company to be required
pursuant to Rule 903(c)(3)(ii)(B) under the Securities Act, except in
the case of a transfer pursuant to an exemption from the registration
requirements of the Securities Act other than Rule 903 or Rule 904.
(iii) Beneficial Interests in Restricted Global Notes to
Unrestricted Definitive Notes. A holder of a beneficial interest in a
Restricted Global Note may exchange such beneficial interest for an
Unrestricted Definitive Note or may transfer such beneficial interest
to a Person who takes delivery thereof in the form of an Unrestricted
Definitive Note only if:
(A) such exchange or transfer is effected pursuant to
the Exchange Offer in accordance with the Registration Rights
Agreement and the holder of such beneficial interest in the
case of an exchange, or the transferee, in the case of a
transfer, makes the certifications required by Section 2(e) of
the Registration Rights Agreement in the applicable Letter of
Transmittal;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration
Rights Agreement;
(C) such transfer is effected by an Exchanging Dealer
pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement. or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in
a Restricted Global Note proposes to exchange such beneficial interest
for an Unrestricted Definitive Note that does not bear the Private
Placement Legend, a certificate from such holder in the form of Exhibit
C hereto, including the certifications in item (1)(b) thereof; or
(2) if the holder of such beneficial interest in
a Restricted Global Note proposes to transfer such beneficial interest
to a Person who shall take delivery thereof in the form of an
Unrestricted Definitive Note that does not bear the Private Placement
Legend, a certificate from such holder in the form of Exhibit B hereto,
including the certifications in item (3)(c) or (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Company or the Registrar so requests or if the Applicable Procedures so
require, an Opinion of Counsel in form reasonably acceptable to the
Company or the Registrar, as applicable, to the effect that such
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exchange or transfer is in compliance with the Securities Act and that
the restrictions on transfer contained herein and in the Private
Placement Legend are no longer required in order to maintain compliance
with the Securities Act.
(iv) Beneficial Interests in Unrestricted Global Notes to
Unrestricted Definitive Notes. If any holder of a beneficial interest
in an Unrestricted Global Note proposes to exchange such beneficial
interest for a Definitive Note or to transfer such beneficial interest
to a Person who takes delivery thereof in the form of a Definitive
Note, then, upon satisfaction of the conditions set forth in Section
2.06(b)(ii) hereof, the Trustee shall cause the aggregate principal
amount of the applicable Global Note to be reduced accordingly pursuant
to Section 2.06(h) hereof, and the Company shall execute and the
Trustee shall authenticate and make available for delivery to the
Person designated in the instructions a Definitive Note in the
appropriate principal amount. Any Definitive Note issued in exchange
for a beneficial interest pursuant to this Section 2.06(c)(iv) shall be
registered in such name or names and in such authorized denomination or
denominations as the holder of such beneficial interest shall instruct
the Registrar through instructions from the Depositary and the
Participant or Indirect Participant. The Trustee shall make available
for delivery such Definitive Notes to the Persons in whose names such
Notes are so registered. Any Definitive Note issued in exchange for a
beneficial interest pursuant to this Section 2.06(c)(iv) shall not bear
the Private Placement Legend.
(d) Transfer and Exchange of Definitive Notes for Beneficial Interests.
(i) Restricted Definitive Notes to Beneficial Interests in
Restricted Global Notes. If any Holder of a Restricted Definitive Note
proposes to exchange such Note for a beneficial interest in a
Restricted Global Note or to transfer such Restricted Definitive Notes
to a Person who takes delivery thereof in the form of a beneficial
interest in a Restricted Global Note, then, upon receipt by the
Registrar of the following documentation:
(A) if the Holder of such Restricted Definitive Note
proposes to exchange such Note for a beneficial interest in a
Restricted Global Note, a certificate from such Holder in the
form of Exhibit C hereto, including the certifications in item
(2)(b) thereof;
(B) if such Restricted Definitive Note is being
transferred to a QIB in accordance with Rule 144A, a
certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (1) thereof; or
(C) if such Restricted Definitive Note is being
transferred to a Non-U.S. Person in an offshore transaction in
accordance with Rule 903 or Rule 904, a certificate to the
effect set forth in Exhibit B hereto, including the
certifications in item (2) thereof,
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upon confirmation of such receipt, the Trustee shall cancel
the Restricted Definitive Note, increase or cause to be
increased the aggregate principal amount of, in the case of
clause (A) above, the appropriate Restricted Global Note, in
the case of clause (B) above, the 144A Global Note, and in the
case of clause (C) above, the Regulation S Global Note, in
each case, bearing the Private Placement Legend.
(ii) Restricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of a Restricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global
Note or transfer such Restricted Definitive Note to a Person who takes
delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note only if:
(A) such exchange or transfer is effected pursuant to
the Exchange Offer in accordance with the Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, makes the certification
required under Section 2(e) of the Registration Rights
Agreement in the applicable Letter of Transmittal;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration
Rights Agreement;
(C) such transfer is effected by an Exchanging Dealer
pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Definitive Notes
proposes to exchange such Notes for a beneficial interest in the
Unrestricted Global Note, a certificate from such Holder in the form of
Exhibit C hereto, including the certifications in item (1)(c) thereof;
or
(2) if the Holder of such Definitive Notes
proposes to transfer such Notes to a Person who shall take delivery
thereof in the form of a beneficial interest in the Unrestricted Global
Note, a certificate from such Holder in the form of Exhibit B hereto,
including the certifications in item (3)(c) or (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Company or Registrar so requests or if the Applicable Procedures so
require, an Opinion of Counsel in form reasonably acceptable to the
Company or Registrar, as applicable, to the effect that such exchange
or transfer is in compliance with the Securities Act and that the
restrictions on transfer contained herein and in the Private Placement
Legend are no longer required in order to maintain compliance with the
Securities Act.
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Upon confirmation by the Registrar of satisfaction of the conditions of
any of the subparagraphs in this Section 2.06(d)(ii), the Trustee shall
cancel the Definitive Notes and increase or cause to be increased the
aggregate principal amount of the Unrestricted Global Note.
(iii) Unrestricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note
may exchange such Note for a beneficial interest in an Unrestricted
Global Note or transfer such Definitive Notes to a Person who
takes delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note at any time. Upon receipt of a request for
such an exchange or transfer, the Trustee shall cancel the applicable
Unrestricted Definitive Note and increase or cause to be increased the
aggregate principal amount of one of the Unrestricted Global Notes.
If any such exchange or transfer from a Definitive Note to a
beneficial interest in a Global Note is effected pursuant to subparagraphs
(ii)(B), (ii)(D) or (iii) above at a time when an Unrestricted Global Note has
not yet been issued, the Company shall issue and, upon receipt of an
Authentication Order in accordance with Section 2.02 hereof, the Trustee shall
authenticate one or more Unrestricted Global Notes in an aggregate principal
amount equal to the aggregate principal amount of Definitive Notes so
transferred.
(e) Transfer and Exchange of Definitive Notes for Definitive Notes.
Upon request by a Holder of Definitive Notes and such Holder's
compliance with the provisions of this Section 2.06(e), the Registrar shall
register the transfer or exchange of Definitive Notes. Prior to such
registration of transfer or exchange, the requesting Holder shall present or
surrender to the Registrar the Definitive Notes duly endorsed or accompanied by
a written instruction of transfer in form satisfactory to the Registrar duly
executed by such Holder or by his attorney, duly authorized in writing. In
addition, the requesting Holder shall provide any additional certifications,
documents and information, as applicable, required pursuant to the following
provisions of this Section 2.06(e).
(i) Restricted Definitive Notes to Restricted Definitive
Notes. Any Restricted Definitive Note may be transferred to and
registered in the name of Persons who take delivery thereof in the form
of a Restricted Definitive Note if the Registrar receives the
following:
(A) if the transfer will be made pursuant to Rule
144A, then the transferor must deliver a certificate in the
form of Exhibit B hereto, including the certifications in item
(1) thereof;
(B) if the transfer will be made pursuant to Rule 903
or Rule 904, then the transferor must deliver a certificate in
the form of Exhibit B hereto, including the certifications in
item (2) thereof;
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(C) if such beneficial interest is being transferred
pursuant to an exemption from the registration requirements of
the Securities Act in accordance with Rule 144, a certificate
to the effect set forth in Exhibit B hereto, including the
certifications in item (3)(a) thereof; or
(D) if such beneficial interest is being transferred
to the Company or any of its Subsidiaries, a certificate to
the effect set forth in Exhibit B hereto, including the
certifications in item (3)(b) thereof.
(ii) Restricted Definitive Notes to Unrestricted Definitive
Notes. Any Restricted Definitive Note may be exchanged by the Holder
thereof for an Unrestricted Definitive Note or transferred to a Person
or Persons who take delivery thereof in the form of an Unrestricted
Definitive Note if:
(A) such exchange or transfer is effected pursuant to
the Exchange Offer in accordance with the Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, makes the certification
required by Section 2(e) of the Registration Rights Agreement
in the applicable Letter of Transmittal;
(B) any such transfer is effected pursuant to the
Shelf Registration Statement in accordance with the
Registration Rights Agreement;
(C) any such transfer is effected by an Exchanging
Dealer pursuant to the Exchange Offer Registration Statement
in accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted Definitive
Notes proposes to exchange such Notes for an Unrestricted Definitive
Note, a certificate from such Holder in the form of Exhibit C hereto,
including the certifications in item (1)(d) thereof; or
(2) if the Holder of such Restricted Definitive
Notes proposes to transfer such Notes to a Person who shall take
delivery thereof in the form of an Unrestricted Definitive Note, a
certificate from such Holder in the form of Exhibit B hereto, including
the certifications in item (3)(c) or (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Company or Registrar so requests, an Opinion of Counsel in form
reasonably acceptable to the Company or Registrar, as applicable, to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained
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herein and in the Private Placement Legend are no longer required in
order to maintain compliance with the Securities Act.
(iii) Unrestricted Definitive Notes to Unrestricted Definitive
Notes. A Holder of Unrestricted Definitive Notes may transfer such
Notes to a Person who takes delivery thereof in the form of an
Unrestricted Definitive Note. Upon receipt of a request to register
such a transfer, the Registrar shall register the Unrestricted
Definitive Notes pursuant to the instructions from the Holder thereof.
(f) Exchange Offer.
Upon the consummation of the Exchange Offer in accordance with
the Registration Rights Agreement, the Company shall issue and, upon receipt of
an Authentication Order in accordance with Section 2.02 hereof, the Trustee
shall authenticate (i) one or more Unrestricted Global Notes in an aggregate
principal amount equal to the aggregate principal amount of the beneficial
interests in the Restricted Global Notes tendered for acceptance by Persons that
make the certifications required by Section 2(e) of the Registration Rights
Agreement in the applicable Letters of Transmittal or via the Depositary's
book-entry system, and accepted for exchange in the Exchange Offer and (ii)
Definitive Notes in an aggregate principal amount equal to the aggregate
principal amount of the Restricted Definitive Notes tendered for acceptance by
Persons that make the certifications required by Section 2(e) of the
Registration Rights Agreement in the applicable Letters of Transmittal, and
accepted for exchange in the Exchange Offer. Concurrently with the issuance of
such Notes, the Trustee shall cause the aggregate principal amount of the
applicable Restricted Global Notes to be reduced accordingly, and the Company
shall execute and the Trustee shall authenticate and make available for delivery
to the Persons designated by the Holders of Definitive Notes so accepted
Definitive Notes in the appropriate principal amount.
(g) Legends. The following legends shall appear on the face of all
Global Notes and Definitive Notes issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B) below,
each Global Note and each Definitive Note (and all Notes
issued in exchange therefor or substitution thereof) shall
bear the legend in substantially the following form:
"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND
MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
EXCEPT (A)(1) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES
IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE
144A UNDER THE SECURITIES ACT ("RULE 144A") IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (2) IN
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AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903
OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, OR (3)
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE)
AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF
THE STATES OF THE UNITED STATES."
(B) Notwithstanding the foregoing, any Global Note or
Definitive Note issued pursuant to subparagraphs (b)(iv),
(c)(iii), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to this
Section 2.06 (and all Notes issued in exchange therefor or
substitution thereof) shall not bear the Private Placement
Legend.
(ii) Global Note Legend. Each Global Note shall bear a legend
in substantially the following form:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE
INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR
THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT
TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT
(I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE
REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (II) THIS
GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT
TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE
MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO
SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE
TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN
CONSENT OF THE COMPANY."
(iii) Regulation S Temporary Global Note Legend. The
Regulation S Temporary Global Note shall bear a legend in substantially
the following form:
"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, PRIOR TO THE EXPIRATION OF A DISTRIBUTION COMPLIANCE
PERIOD (DEFINED AS 40 DAYS AFTER THE ISSUE DATE WITH RESPECT
TO THE NOTES), MAY NOT BE: OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT (A)(1) IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S OR (2) TO
A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A") IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144, AND (B) IN ACCORDANCE WITH ALL
APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES.
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THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL
NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS
EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE
INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE
BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL
NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST
HEREON."
(h) Cancellation and/or Adjustment of Global Notes.
At such time as all beneficial interests in a particular
Global Note have been exchanged for Definitive Notes or a particular Global Note
has been redeemed, repurchased or canceled in whole and not in part, each such
Global Note shall be returned to or retained and canceled by the Trustee in
accordance with Section 2.11 hereof. At any time prior to such cancellation, if
any beneficial interest in a Global Note is exchanged for or transferred to a
Person who will take delivery thereof in the form of a beneficial interest in
another Global Note or for Definitive Notes, the principal amount of Notes
represented by such Global Note shall be reduced accordingly and an endorsement
shall be made on such Global Note by the Trustee or by the Depositary at the
direction of the Trustee to reflect such reduction, and if the beneficial
interest is being exchanged for or transferred to a Person who will take
delivery thereof in the form of a beneficial interest in another Global Note,
such other Global Note shall be increased accordingly and an endorsement shall
be made on such Global Note by the Trustee or by the Depositary at the direction
of the Trustee to reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the
Company shall, subject to the other provisions of this Section 2.06,
execute and the Trustee shall authenticate Global Notes and Definitive
Notes upon the Company's order or at the Registrar's request.
(ii) No service charge shall be made to a holder of a
beneficial interest in a Global Note or to a Holder of a Definitive
Note 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 charge payable upon
exchange or transfer pursuant to Sections 2.10, 3.06, 3.09, 4.10, 4.14
and 9.05 hereof).
(iii) The Registrar shall not be required to register the
transfer of or exchange any Note selected for redemption in whole or in
part, except the unredeemed portion of any Note being redeemed in part.
(iv) All Global Notes and Definitive Notes issued upon any
registration of transfer or exchange of Global Notes or Definitive
Notes shall be the valid obligations of the
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Company, evidencing the same debt, and entitled to the same benefits
under this Indenture, as the Global Notes or Definitive Notes
surrendered upon such registration of transfer or exchange.
(v) The Company shall not be required (A) to issue, to
register the transfer of or to exchange any Notes during a period
beginning at the opening of business 15 Business Days before the day of
the mailing of a notice of redemption or repurchase under Section 3.02
or 4.14 hereof, as applicable, and ending at the close of business on
such day, (B) to register the transfer of or to exchange any Note so
selected for redemption or repurchase in whole or in part, except the
unredeemed portion of any Note being redeemed or repurchased in part or
(c) to register the transfer of or to exchange a Note between a Record
Date and the next succeeding Interest Payment Date.
(vi) Prior to due presentment for the registration of a
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 interest on such Notes and for all other purposes, and
none of the Trustee, any Agent or the Company shall be affected by
notice to the contrary.
(vii) The Trustee shall authenticate Global Notes and
Definitive Notes in accordance with the provisions of Section 2.02
hereof.
(viii) All certifications, certificates and Opinions of
Counsel required to be submitted to the Registrar pursuant to this
Section 2.06 to effect a registration of transfer or exchange may be
submitted by facsimile.
(ix) Each Holder of a Note agrees to indemnify the Trustee and
the Registrar against any liability that may result from the transfer,
exchange or assignment of such Holder's Note in violation of any
provision of this Indenture and/or applicable United States federal or
state securities law.
(x) Neither the Trustee nor the Registrar shall have any
obligation or duty to monitor, determine or inquire as to compliance
with any restrictions on transfer imposed under this Indenture or under
applicable law with respect to any transfer of any interest in any Note
(including any transfers between or among Participants or beneficial
owners of interests in any Global Note) other than to require delivery
of such certificates and other documentation or evidence as are
expressly required by, and to do so if and when expressly required by
the terms of, this Indenture, and to examine the same to determine
substantial compliance as to form with the express requirements hereof.
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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 receipt of an Authentication Order, 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 and any authenticating agent from any loss that any of them may suffer
if a Note is replaced. The Company may require the payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in relation
thereto, and may charge for its expenses (including the fees and expenses of the
Trustee and reasonable attorney's fees and expenses) in replacing a Note.
Every replacement Note is an additional obligation of the
Company and shall be entitled to all of the benefits of this Indenture equally
and proportionately with all other Notes duly issued hereunder.
If any mutilated, lost, stolen or destroyed Note has become or
is about to become due and payable, the Company, in its sole discretion, may,
instead of issuing a new Note, pay such Note.
SECTION 2.8 OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes
authenticated by the Trustee except for those cancelled by it, those delivered
to it for cancellation, those reductions in the interest in a Global Note
effected by the Trustee in accordance with the provisions hereof, and those
described in this Section as not outstanding. Except as set forth in Section
2.09 hereof, a Note does not cease to be outstanding because the Company or an
Affiliate of the Company holds the Note; however, Notes held by the Company or a
Subsidiary of the Company shall not be deemed to be outstanding for purposes of
Section 3.07(b) hereof.
If a Note is replaced pursuant to Section 2.07 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 or protected purchaser.
If the principal amount of any Note is considered paid under
Section 4.01 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) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.
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SECTION 2.9 TREASURY NOTES
In determining whether the Holders of the required aggregate
principal amount of Notes have concurred in any direction, waiver or consent,
Notes owned by the Company, or by any Person directly or indirectly controlling
or controlled by or under direct or indirect common control with 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 or consent, only Notes that the Trustee knows are so owned
shall be so disregarded.
SECTION 2.10 TEMPORARY NOTES
Until certificates representing Notes are ready for delivery,
the Company may prepare and the Trustee, upon receipt of an Authentication
Order, shall authenticate temporary Notes. Temporary Notes shall be
substantially in the form of certificated Notes but may have variations that the
Company considers appropriate for temporary Notes and as shall be reasonably
acceptable to the Trustee. Without unreasonable delay, the Company shall prepare
and the Trustee shall authenticate definitive Notes in exchange for temporary
Notes.
Holders of temporary Notes shall be entitled to all of the
benefits 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 and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy
cancelled Notes (subject to the record retention requirements of the Exchange
Act). Certification of the destruction of all canceled Notes shall be delivered
to the Company. The Company may not issue new Notes to replace Notes that it has
paid or that have been delivered to the Trustee for cancellation.
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, in each case at the rate provided
in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in
writing of the amount of defaulted interest proposed to be paid on each Note and
the date of the proposed payment. The Company shall fix or cause to be fixed
each such Special Record Date and payment date, provided that no such Special
Record Date shall be less than 10 days prior to the related payment date for
such defaulted interest. At least 15 days before the Special Record Date, the
Company (or, upon the written request of the Company, the Trustee in the name
and at the expense of the Company) shall mail or cause to be mailed to Holders a
notice that states the Special Record Date, the related payment date and the
amount of such interest to be paid. The defaulted
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interest shall be considered paid upon deposit with the Trustee or the Paying
Agent of an amount of money equal to the aggregate amount proposed to be paid in
respect of such defaulted interest, and interest on such defaulted interest
shall thereafter cease to accrue from that date. The Company may make payment of
any defaulted interest in any other lawful manner not inconsistent with the
requirements of any securities exchange or other trading market on which the
securities of the Company are listed or traded, and upon such notice as may be
required by such exchange or trading market, if, after written notice given by
the Company to the Trustee of the proposed payment, such manner of payment shall
be deemed practicable by the Trustee.
SECTION 2.13 CUSIP NUMBERS.
The Company in issuing the Notes may use "CUSIP" numbers (if
then generally in use), and, if so, the Trustee shall use CUSIP numbers in
notices of redemption as a convenience to Holders; provided that any such notice
may state that no representation is made as to the correctness of such numbers
either as printed on the Notes or as contained in any notice of a redemption and
that reliance may be placed only on the other identification numbers printed on
the Notes, and any such redemption shall not be affected by any defect in or the
omission of such numbers. The Company will promptly notify the Trustee of any
change in the CUSIP numbers.
ARTICLE 3.
REDEMPTION AND PREPAYMENT
SECTION 3.1 NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 30 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (i) the clause of this Indenture pursuant to
which the redemption shall occur, (ii) the redemption date, (iii) the principal
amount of Notes to be redeemed, (iv) the redemption price and (v) the CUSIP
numbers of the Notes to be redeemed.
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 select the Notes to be redeemed or purchased among the Holders
of the Notes 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 in accordance with any other
method the Company considers fair and appropriate. 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 in writing of
the Notes selected for redemption and, in the case of any Note selected for
partial redemption, the principal amount thereof
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to be redeemed. Notes and portions of Notes selected shall be in amounts of
$1,000 or whole multiples of $1,000; except that if all of the Notes of a Holder
are to be redeemed, the entire outstanding amount of Notes held by such Holder,
even if not a multiple of $1,000, shall be redeemed. 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.
SECTION 3.3 NOTICE OF REDEMPTION
Subject to the provisions of Section 3.09 hereof, at least 30
days but not more than 60 days before a redemption date, the Company shall mail
or cause to be mailed, by first class mail, a notice of redemption to each
Holder whose Notes are to be redeemed at its registered address.
The notice shall identify the Notes to be redeemed and shall
state:
(a) the redemption date;
(b) the redemption price;
(c) 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
surrender of such Note, a new Note or Notes in principal amount equal to the
unredeemed portion shall be issued upon cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and after
the redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(h) 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.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company shall have delivered 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
3.03 hereof, Notes called for redemption become irrevocably due and payable on
the redemption date at the redemption price. A notice of redemption may not be
conditional.
SECTION 3.5 DEPOSIT OF REDEMPTION PRICE
Prior to 12:00 noon New York City time on the redemption date,
the Company shall deposit with the Trustee or with the Paying Agent money
sufficient to pay the redemption price of and accrued interest on all Notes to
be redeemed on that date. The Trustee or the Paying Agent shall promptly return
to the Company any money deposited with the Trustee or the Paying Agent by the
Company in excess of the amounts necessary to pay the redemption price of, and
accrued interest 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 a Record Date but on or prior to the related Interest Payment Date,
then any accrued and unpaid interest shall be paid to the Person in whose name
such Note was registered at the close of business on such Record 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, from the redemption date until
such principal is paid, and to the extent lawful on any interest not paid on
such unpaid principal, in each case at the rate provided in the Notes and in
Section 4.01 hereof.
SECTION 3.6 NOTES REDEEMED IN PART
Upon surrender of a Note that is redeemed in part, the Company
shall issue and, upon the Company's written, request, 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 Note surrendered.
SECTION 3.7 OPTIONAL REDEMPTION.
(a) Except as set forth in Sections 3.07(b) and (c) below, the Notes
shall not be redeemable at the Company's option prior to November 15, 2003.
Thereafter, the Notes shall be subject to redemption at any time 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 (subject to the right
of Holders of record on the relevant Record Date to receive interest due on the
relevant Interest Payment Date), if redeemed during the twelve-month period
beginning on November 15 of the years indicated below:
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<PAGE>
<TABLE>
<CAPTION>
Percentage
of Principal
Year Amount
- ---- ------------
<S> <C>
2003............................................... 105.000%
2004............................................... 103.333%
2005............................................... 101.667%
2006 and thereafter................................ 100.000%
</TABLE>
(b) Notwithstanding the foregoing, at any time prior to November 15,
2001, the Company may, on any one or more occasions, redeem up to 35% of the
aggregate principal amount of Notes originally issued pursuant to this Indenture
at a redemption price of 110% of the principal amount thereof, plus accrued and
unpaid interest (and Liquidation Damages, if any) thereon to the redemption date
(subject to the right of Holders of record on the relevant Record Date to
receive interest due on the relevant Interest Payment Date), with the Net Cash
Proceeds received from any Public Equity Offering made by the Company resulting
in gross proceeds to the Company of at least $100 million; provided that at
least 65% of the aggregate principal amount of Notes originally issued pursuant
to this Indenture remain outstanding immediately after the occurrence of any
such redemption. The Company may make any such redemption upon not less than 30
nor more than 60 days' notice (but in no event more than 90 days after the
closing of the related Public Equity Offering).
(c) Any redemption pursuant to this Section 3.07 shall be made pursuant
to the provisions of Section 3.01 through 3.06 hereof.
SECTION 3.8 MANDATORY REDEMPTION.
The Company shall not be required to make mandatory redemption
or sinking fund payments with respect to the Notes.
SECTION 3.09 OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
In the event that, pursuant to Section 4.10 hereof, the
Company shall be required to commence an Asset Sale Offer, it shall follow the
procedures specified below.
The Asset Sale Offer shall remain open for a period of 20
Business Days following its commencement and no longer, except to the extent
that a longer period is required by applicable law (the "Offer Period"). No
later than 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 4.10 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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If the Purchase Date is on or after a Record Date and on or
before the related Interest Payment Date, any accrued and unpaid interest 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
3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer shall
remain open;
(b) the Offer Amount, the purchase price 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 payment, 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 an Asset
Sale Offer may only elect to have all of such Note purchased and may not elect
to have only a portion of such Note purchased;
(f) 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;
(g) 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 aggregate
principal amount of the Note the Holder delivered for purchase and a statement
that such Holder is withdrawing his election to have such Note purchased;
(h) that, if the aggregate principal amount of Notes surrendered by
Holders exceeds the Offer Amount, the Company shall select the Notes to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of $1,000, or
integral multiples thereof, shall be purchased); and
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(i) that Holders whose Notes were 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 12:00 noon New York City time on 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 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 3.09. The
Company, the Depositary or the Paying Agent, as the case may be, shall promptly
(but in any case not later than five 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, 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 3.09, any
purchase pursuant to this Section 3.09 shall be made pursuant to the provisions
of Sections 3.01 through 3.06 hereof.
ARTICLE 4.
COVENANTS
SECTION 4.1 PAYMENT OF NOTES
The Company shall pay or cause to be paid the principal of,
premium, if any, and interest and Liquidated Damages, if any, on the Notes on
the dates and in the manner provided in the Notes. Principal, premium, if any,
and interest and Liquidated Damages, if any, shall be considered paid on the
date due if the Paying Agent, if other than the Company or a Subsidiary thereof,
holds as of 12:00 noon New York City time on the due date money deposited by the
Company in immediately available funds and designated for and sufficient to pay
all principal, premium, if any, and interest and Liquidated Damages, if any,
then due.
Notwithstanding anything to the contrary in this Indenture,
the Company may, to the extent it is required to do so by law, deduct or
withhold income or other similar taxes imposed by the United States of America
from principal or interest payments hereunder.
The Company shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue principal at the
rate equal to 1% per annum in excess of the then applicable interest rate on the
Notes to the extent lawful; it shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue installments of
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interest and Liquidated Damages (without regard to any applicable grace period)
at the same rate to the extent lawful.
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 or
an affiliate of the Trustee, Registrar or co-registrar) where Notes may be
surrendered for registration of transfer or for exchange 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 obligation to maintain an office or agency in the
Borough of Manhattan, the City of New York for such purposes. The Company shall
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 Corporate Trust Office of
the Trustee as one such office or agency of the Company in accordance with
Section 2.03 hereof.
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 will furnish to the Trustee and
the Holders of the 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 consolidated 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 each case within the time
periods specified in the SEC's rules and regulations. In addition, following the
consummation of the Exchange Offer contemplated by the Registration Rights
Agreement, 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 within the time periods specified in the SEC's rules and
regulations (unless the SEC will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. The Company shall at all times comply with TIA Section 314(a).
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<PAGE>
(b) For so long as any Series A Notes remain outstanding (and
regardless of the penultimate sentence of paragraph (a) above), the Company
shall 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.
SECTION 4.4 COMPLIANCE CERTIFICATE.
(a) The Company shall deliver to the Trustee within 90 days after the
end of each fiscal year, 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 the Company 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 or her knowledge the Company
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 of this Indenture (or, if a Default or
Event of Default shall have occurred, describing all such Defaults or Events of
Default of which he or she may have knowledge and what action the Company is
taking or proposes to take with respect thereto) and that to the best of his or
her knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or interest, if any, on the Notes is
prohibited or if such event has occurred, a description of the event and what
action the Company is taking or proposes to take with respect thereto. For
purposes of this paragraph, such compliance shall be determined without regard
to any period of grace or requirement of notice provided under this Indenture.
(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 4.03(a) hereof shall be accompanied by
a written statement of the Company's independent public accountants (who shall
be a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article 4 or Article 5 hereof 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 shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.
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SECTION 4.5 TAXES.
The Company shall pay, and shall cause each of its
Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and
governmental levies except such as are contested in good faith and by
appropriate proceedings or where the failure to effect such payment is not
adverse in any material respect to the Holders of the Notes.
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, that 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
through no such law has been enacted.
SECTION 4.7 RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any of its
Restricted 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 Restricted Subsidiaries' Equity Interests or to the direct or
indirect holders of the Company's or any of its Restricted Subsidiaries' Equity
Interests in their capacity as stockholders (other than dividends or
distributions payable in Equity Interests (other than Disqualified Stock) of the
Company or to the Company or a Restricted Subsidiary of the Company); (ii)
purchase, redeem or otherwise acquire or retire for value any Equity Interests
of the Company or any of its Restricted Subsidiaries or any direct or indirect
parent of the Company (other than any such Equity Interests owned by the Company
or any Consolidated Subsidiary of the Company); (iii) make any payment on or
with respect to, or purchase, redeem, defease or otherwise acquire or retire for
value any Subordinated Indebtedness, except a payment of interest or principal
at Stated Maturity; 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:
(a) at the time of and after giving effect to such
Restricted Payment, 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 period, have been permitted to incur at least $1.00
of additional Indebtedness pursuant to either clause (i) or
(ii) of the first paragraph of Section 4.09 hereof; and
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(c) such Restricted Payment, together with the
aggregate amount of all other Restricted Payments made by the
Company and its Restricted Subsidiaries on and after the Issue
Date (excluding Restricted Payments permitted by, and made
pursuant to, clauses (ii) and (iii) and (viii) of the next
succeeding paragraph), is less than the sum, without
duplication and except as credited in the next succeeding
paragraph, of (i) 50% of the Consolidated Net Income of the
Company for the period (taken as one accounting period)
beginning on the last day of the fiscal quarter immediately
preceding the Issue Date and ending on the last day of the
fiscal quarter immediately preceding the date of such
Restricted Payment (or, if such Consolidated Net Income for
such period is a deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate Net Cash Proceeds received by the
Company on and after the Issue Date as a Capital Contribution
or from the issue or sale of Equity Interests of the Company
(other than Disqualified Stock) or from the issue or sale of
Disqualified Stock or debt securities of the Company that have
been converted or exchanged into such Equity Interests (other
than Equity Interests (or Disqualified Stock or converted debt
securities) sold to a Subsidiary of the Company), plus the
amount of Net Cash Proceeds received by the Company upon such
conversion or exchange, plus (iii) the aggregate amount equal
to the net reduction in Investments in Unrestricted
Subsidiaries on and after the Issue Date resulting from (x)
dividends, distributions, interest payments, return of
capital, repayments of Investments or other transfers of
assets to the Company or any Restricted Subsidiary from any
Unrestricted Subsidiary, (y) proceeds realized by the Company
or any Restricted Subsidiary upon the sale of such Investment
to a Person other than the Company or any Subsidiary of the
Company, or (z) the redesignation of any Unrestricted
Subsidiary as a Restricted Subsidiary, not to exceed in the
case of any of the immediately preceding clauses (x), (y) or
(z) the aggregate amount of Restricted Investments made by the
Company or any Restricted Subsidiary in such Unrestricted
Subsidiary on and after the Issue Date, plus (iv) to the
extent that any Restricted Investment that was made on and
after the Issue Date is sold for cash or otherwise liquidated
or repaid for cash, the lesser of, to the extent paid to the
Company or a Restricted Subsidiary, (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 Investment.
The foregoing provisions will not prohibit (i) the payment of
any dividend within 60 days after the date of declaration thereof, if at said
date of declaration such payment would have complied with the foregoing
provisions; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any Subordinated Indebtedness or Equity Interests of the Company
in exchange for, or out of the Net Cash Proceeds of the substantially concurrent
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sale (other than to a Subsidiary of the Company) of, Equity Interests of the
Company (other than any Disqualified Stock); provided that the amount of any
such Net Cash Proceeds that are utilized for, and the Equity Interests issued or
exchanged for, any such redemption, repurchase, retirement, defeasance or other
acquisition shall be excluded from clause (c) of the preceding paragraph and
each other clause of this paragraph; (iii) the defeasance, redemption,
retirement, repurchase or other acquisition of Subordinated Indebtedness with
the Net Cash Proceeds from, or issued in exchange for, a substantially
concurrent incurrence of Permitted Refinancing Indebtedness; provided that the
amount of any such Net Cash Proceeds that are utilized for any such redemption,
repurchase, retirement, defeasance or other acquisition shall be excluded from
clause (c) of the preceding paragraph and each other clause of this paragraph;
(iv) the payment of any dividend or other distribution by a Restricted
Subsidiary of the Company to the holders of its Equity Interests on a pro rata
basis; (v) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of the Company or any of its Restricted
Subsidiaries held by any member of the Company's or such Restricted Subsidiary's
management; provided that the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests shall not exceed $1.0 million in
any fiscal year; (vi) retiring any Equity Interests of the Company to the extent
necessary (as determined in good faith by a majority of the disinterested
members of the Board of Directors, whose determination shall be evidenced by a
resolution thereof) to prevent the loss, or to secure the renewal or
reinstatement, of any license or franchise held by the Company or any Restricted
Subsidiary from any governmental agency; (vii) Investments in Telecommunications
Assets, provided that the aggregate fair market value (measured on the date each
such Investment was made or returned, as applicable), when taken together with
all other Investments made pursuant to this clause (vii) that are at the time
outstanding, does not exceed the sum of (y) $15.0 million, plus (z) the
aggregate amount equal to the net reduction in Investments made pursuant to this
clause (vii) on and after the Issue Date resulting from dividends,
distributions, interest payments, return of capital, repayments of such
Investments or Net Cash Proceeds realized by the Company or any Restricted
Subsidiary upon the sale of such Investment to a Person other than the Company
or any Subsidiary of the Company, except to the extent any such net reduction
amount is included in the amount calculated pursuant to clause (c) of the
preceding paragraph or any other clause of this paragraph; (viii) Investments in
Telecommunications Assets made with the (x) Net Cash Proceeds, the fair market
value of Telecommunications Assets or (z) Equity Interests of a Person that
becomes a Restricted Subsidiary (provided that the assets of such Person consist
entirely or substantially entirely of Telecommunications Assets), in each case,
received from the issuance or sale (other than to a Subsidiary of the Company)
of 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
Investment shall be excluded from clause (c) of the preceding paragraph and each
other clause of this paragraph; (ix) Investments in ION, provided that the
aggregate fair market value thereof (measured on the date each such Investment
was made or returned, as applicable), when taken together with all other
Investments made pursuant to this clause (ix) does not exceed the sum of (I)
$15.0 million, plus, (II) for each fiscal year, an amount equal to the amount of
cash received by the Company or any of its Restricted Subsidiaries from ION or
any of its Subsidiaries during such fiscal year, except to the extent any such
amount is included in the amount calculated pursuant to clause (c) of the
preceding paragraph or any other clause of this paragraph, plus (III), to the
extent necessary to pay reasonable and necessary operating expenses of ION, an
amount not to exceed $1.0 million in each fiscal year; and (x) Investments in
the German Joint Venture, provided that the aggregate fair market
value (measured on the date each such Investment was made or returned, as
applicable), when taken together with all other Investments made pursuant to
this clause (x) that are at the time outstanding, does not exceed the sum of (y)
$100.0 million, plus (z) the aggregate amount equal to the net reduction in
Investments made pursuant to this clause (x) on and after the Issue Date
resulting from dividends, distributions, interest payments, return of capital,
repayments of such Investments or Net Cash Proceeds realized by the
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Company or any Restricted Subsidiary upon the sale of such Investment to a
Person other than the Company or any Subsidiary of the Company, except to the
extent such amount is included in the amount calculated pursuant to clause (c)
of the preceding paragraph or any other clause of this paragraph.
The Board of Directors may not designate any Subsidiary of the
Company (other than a newly created Subsidiary in which no Investment has
previously been made (other than any de minimus amount required to capitalize
such Subsidiary in connection with its organization)) as an Unrestricted
Subsidiary (a "Designation") unless: (i) no Default or Event of Default shall
have occurred and be continuing at the time of or after giving effect to such
Designation; (ii) the Company would, immediately after giving effect to such
Designation, have been permitted to incur at least $1.00 of additional
Indebtedness pursuant to either clause (i) or (ii) of the first paragraph of
Section 4.09 hereof and (iii) the Company would not be prohibited under the
Indenture from making an Investment at the time of such Designation (assuming
the effectiveness of such Designation for purposes of this Section 4.07) in an
amount equal to the fair market value of the net Investment of the Company and
all Restricted Subsidiaries in such Subsidiary on such date.
In the event of any such Designation, all outstanding
Investments owned by the Company and its Restricted Subsidiaries in the
Subsidiary so designated will be deemed to be an Investment made as of the time
of such Designation and will reduce the amount available for Restricted Payments
under the first or second paragraph of this covenant, as applicable. All such
outstanding Investments will be deemed to constitute Restricted Payments in an
amount equal to the fair market value of such Investments at the time of such
Designation.
A Designation may be revoked and an Unrestricted Subsidiary
may thus be redesignated a Restricted Subsidiary (a "Revocation") by a
resolution of the Board of Directors delivered to the Trustee; provided that the
Company will not make any Revocation unless: (i) no Default or Event of Default
shall have occurred and be continuing at the time of or after giving effect to
such Designation; and (ii) all Liens and Indebtedness of such Unrestricted
Subsidiary outstanding immediately following such Revocation would, if incurred
at such time, have been permitted to be incurred at such time for all purposes
under this Indenture.
The amount of all Restricted Payments (other than cash) shall
be the fair market value on the date of the Restricted Payment of the asset(s)
or securities proposed to be transferred or issued by the Company (or such
Restricted Subsidiary, as the case may be) pursuant to the Restricted Payment.
The fair market value of any asset(s) or securities that are required to be
valued by this covenant shall be determined in good faith by the Board of
Directors (such determination to be based upon an opinion or appraisal issued by
an accounting, appraisal or investment banking firm of national standing if such
fair market value exceeds $15.0 million).
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SECTION 4.8 DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES.
The Company shall not, and shall not permit any of its
Restricted 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 Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1)
on its 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 Restricted Subsidiaries, (ii) make loans or
advances to the Company or any of its Restricted Subsidiaries or (iii)
transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries. However, the foregoing restrictions shall not apply
to encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the Issue Date, (b) this Indenture, the Notes
and the Exchange Notes, and Indebtedness ranking pari passu with the Notes
provided such provisions are no more restrictive than the Notes (c) the
Credit Agreement and any Foreign Subsidiary Credit Agreement, provided that
the restrictions contained in the Credit Agreement are no more restrictive,
taken as a whole, than those contained in a credit agreement with terms that
are commercially reasonable for a borrower that has substantially comparable
Indebtedness and provided, further, that no such provision in the Credit
Agreement shall prohibit or restrict the ability of any Restricted Subsidiary
to pay dividends or make other upstream distributions or other payments to
the Company or any of its Restricted Subsidiaries, (d) applicable law, (e)
any instrument governing Indebtedness or Capital Stock of a Person or assets
acquired by the Company or any of its Restricted 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 by the terms of the Indenture to be incurred, (f)
customary non-assignment provisions in leases entered into in the ordinary
course of business and consistent with past practices, (g) purchase money
obligations (including pursuant to Purchase Money Indebtedness 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, constructed, leased or improved, (h) any agreement for the sale or
other disposition of a Restricted Subsidiary that restricts distributions by
that Restricted Subsidiary pending its sale or other disposition, provided
that the consummation of such transaction would not result in an Event of
Default or an event that, with the passing of time or giving of notice or
both, would constitute an Event of Default, that such restriction terminates
if such transaction is not consummated and that the consummation or
abandonment of such transaction occurs within one year of the date such
agreement was entered into, (i) Permitted Refinancing Indebtedness, provided
that the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive, taken as a whole, than
those contained in the agreements governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded, (j) Liens securing
Indebtedness otherwise permitted to be incurred pursuant to Section 4.12
hereof that limit the right of the Company or any of its Restricted
Subsidiaries to dispose of the assets subject to such Lien, (k) provisions
with respect to the disposition or distribution of assets or property in
joint venture agreements and other similar agreements entered into in the
ordinary course of business, and
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(l) restrictions on cash or other deposits or net worth imposed by customers
under contracts entered into in the ordinary course of business.
SECTION 4.9 INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise (including by way of merger, consolidation or
acquisition), with respect to (collectively, "incur") any Indebtedness and the
Company shall not issue or incur any Disqualified Stock and shall not permit any
of its Restricted Subsidiaries to issue or incur any shares of Preferred Stock;
provided, however, that the Company may incur Indebtedness or issue or incur
shares of Disqualified Stock and its Restricted Subsidiaries may incur Acquired
Debt or Acquired Preferred Stock if either:
(i) the Consolidated Leverage Ratio at the end of the
Company's most recently ended fiscal quarter (the "Reference
Period") for which a consolidated balance sheet of the Company
is available immediately preceding the date on which such
additional Indebtedness is incurred or such Preferred Stock is
issued or incurred would have been less than 5.5 to 1.0 (if
the Reference Period ends on or prior to December 31, 2001),
or 5.0 to 1.0 (if the Reference Period ends subsequent to
December 31, 2001), determined on a pro forma basis
(including, a pro forma application of the net proceeds
therefrom), as if the additional Indebtedness had been
incurred, or the Preferred Stock had been issued, as the case
may be, at the beginning of the Reference Period; or
(ii) the Consolidated Capital Ratio at the end of the
Reference Period would have been less than 2.0 to 1.0,
determined after giving effect to the incurrence or issuance
of such Indebtedness or Preferred Stock and on a pro forma
basis (including a pro forma application of the net proceeds
therefrom).
Notwithstanding the foregoing, the provisions of the paragraph
set forth immediately above will not prohibit the incurrence of any of the
following items of Indebtedness (collectively, "Permitted Indebtedness"):
(a) the incurrence by the Company of Indebtedness
represented by the Notes and the Exchange Notes;
(b) the incurrence by the Company or any of its
Restricted Subsidiaries of Existing Indebtedness;
(c) the incurrence of Indebtedness by the Company to
any Consolidated Subsidiary or Indebtedness of any Restricted
Subsidiary to the Company or any Consolidated Subsidiary (but
such Indebtedness shall be deemed to be incurred upon such
Indebtedness being held by any person other than the Company
or such
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Consolidated Subsidiary including upon Designation and
upon such Restricted Subsidiary otherwise no longer being a
Consolidated Subsidiary); provided that in the case of
Indebtedness of the Company, such obligations shall be
unsecured and subordinated in all respects to the Company's
obligations pursuant to the Notes;
(d) the incurrence by the Company of Indebtedness in
an aggregate amount incurred and outstanding at any time
pursuant to this clause (d) (plus any Permitted Refinancing
Indebtedness incurred pursuant to clause (j) hereof to retire,
defease, refinance, replace or refund such Indebtedness) of up
to $25 million;
(e) the incurrence by the Company, or any Guarantee
thereof by any Restricted Subsidiary (other than any Foreign
Subsidiary), of Indebtedness pursuant to the Credit Agreement
in an aggregate amount incurred and outstanding at any time
pursuant to this clause (e) (plus any Permitted Refinancing
Indebtedness incurred pursuant to clause (j) hereof to retire,
defease, refinance, replace or refund such Indebtedness) of up
to $150 million, minus the amount of any such Indebtedness (i)
retired with the Net Cash Proceeds from any Asset Sale applied
to permanently reduce the outstanding amounts or the
commitments with respect to such Indebtedness pursuant to
Section 4.10 hereof or (ii) assumed by a transferee in an
Asset Sale;
(f) the incurrence by the Company or any of its
Foreign Subsidiaries of Purchase Money Indebtedness; provided
that in each case, such Indebtedness shall not constitute more
than 100% of the cost (determined in accordance with GAAP in
good faith by the Board of Directors of the Company) to the
Company or such Foreign Subsidiary, as applicable, of the
property so purchased, developed, acquired, constructed,
improved or leased;
(g) the incurrence by the Company or any of its
Restricted Subsidiaries of Hedging Obligations that are
incurred for the purpose of fixing or hedging interest or
foreign currency exchange rate risk with respect to any
floating rate Indebtedness or foreign currency based
Indebtedness, respectively, that is permitted by the terms of
the Indenture to be outstanding; provided that the notional
amount of any such Hedging Obligation does not exceed the
amount of Indebtedness or other liability to which such
Hedging Obligation relates;
(h) the incurrence by a Foreign Subsidiary of
Indebtedness pursuant to a Foreign Subsidiary Credit
Agreement (or any Guarantee thereof by any other Foreign
Subsidiary) in an aggregate principal amount incurred and
outstanding at any time pursuant to this clause (h) (plus
any Permitted Refinancing Indebtedness incurred pursuant to
clause (j) hereof to retire, defease, refinance, replace or
refund such Indebtedness) of up to $50.0 million (or the
equivalent thereof at the time of incurrence in the
applicable foreign currencies), minus the amount of any
such Indebtedness (i) retired with the Net Cash Proceeds
from any Asset Sale applied to permanently reduce the
outstanding amounts or the commitments with respect to
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such Indebtedness pursuant to Section 4.10 hereof or (ii)
assumed by a transferee of an Asset Sale;
(i) the Company and its Restricted Subsidiaries may
incur Indebtedness solely in respect of bankers acceptances,
letters of credit and performance bonds, all in the ordinary
course of business in accordance with customary industry
practices, in amounts and for the purposes customary in the
Company's industry (other than to the extent supporting
Indebtedness); and
(j) the incurrence by the Company or any of its
Restricted Subsidiaries, as applicable, of Permitted
Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace Indebtedness
that was incurred pursuant to the first paragraph hereof or
clauses (a), (b), (d), (e), (f), (h) or this clause (j) of
this paragraph.
Indebtedness or Preferred Stock of any Person which is
outstanding at the time such Person becomes a Restricted Subsidiary of the
Company (including upon designation of any Subsidiary or other Person as a
Restricted Subsidiary or upon a Revocation such that such Subsidiary becomes a
Restricted Subsidiary) or is merged with or into or consolidated with the
Company or a Restricted Subsidiary of the Company shall be deemed to have been
incurred at the time such Person becomes such a Restricted Subsidiary of the
Company or is merged with or into or consolidated with the Company or a
Restricted Subsidiary of the Company, as applicable.
Upon each incurrence, the Company may designate pursuant to
which provision of this covenant such Indebtedness is being incurred and such
Indebtedness shall not be deemed to have been incurred by the Company under any
other provision of this covenant, except as stated otherwise in the foregoing
provisions.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, incur any Indebtedness (including Permitted
Indebtedness) that is contractually subordinated in right of payment to any
other Indebtedness of the Company unless such Indebtedness is also contractually
subordinated in right of payment to the Notes on substantially identical terms;
provided, however, that no Indebtedness of the Company shall be deemed to be
contractually subordinated in right of payment to any other Indebtedness of the
Company solely by virtue of being unsecured.
SECTION 4.10 ASSET SALES.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, consummate any Asset Sale,
unless (i) the Company (or such Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the fair
market value (as determined in good faith by the Board of Directors (including
as to the value of all noncash consideration) and set forth in an Officer's
Certificate delivered to the Trustee) of the assets or Equity Interests issued
or sold or otherwise disposed of and (ii) at least 75% of the consideration
therefor is in the form of cash and/or Cash Equivalents or Telecommunications
Assets,
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and (iii) the Net Cash Proceeds received by the Company (or such Restricted
Subsidiary, as the case may be) from such Asset Sale are applied within 360 days
following the receipt of such Net Cash Proceeds, to the extent the Company (or
such Restricted Subsidiary, as the case may be) elects, (a) to the permanent
redemption or repurchase of outstanding Indebtedness (other than Subordinated
Indebtedness) that is secured Indebtedness (including that in the case of a
revolver or similar arrangement that makes credit available, such commitment is
so permanently reduced by such amount) or Indebtedness of the Company or such
Restricted Subsidiary that ranks equally with the Notes but has a maturity date
that is prior to the maturity date of the Notes and/or (b) to reinvest such Net
Cash Proceeds (or any portion thereof) in Telecommunications Assets.
Notwithstanding anything herein to the contrary, with respect to the
reinvestment of Net Cash Proceeds, only proceeds from an Asset Sale of assets,
or Equity Interests, of a Foreign Subsidiary may be used to retire Indebtedness
of a Foreign Subsidiary or reinvest in assets or Equity Interests of a Foreign
Subsidiary. The balance of such Net Cash Proceeds, after the application of such
Net Cash Proceeds as described in the immediately preceding clauses (a) and (b),
shall constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds equals or exceeds
$15.0 million (taking into account income earned on such Excess Proceeds), the
Company will be required to make a pro rata offer to all Holders of Notes and
pari passu Indebtedness with comparable provisions requiring such Indebtedness
to be purchased with the proceeds of such Asset Sale (an "Asset Sale Offer") to
purchase the maximum principal amount or accreted value in the case of
Indebtedness issued with an original issue discount of Notes and pari passu
Indebtedness that may be purchased out of the Excess Proceeds, at a purchase
price in cash in an amount equal to 100% of the principal amount thereof or the
accreted value thereof, as applicable, plus accrued and unpaid interest thereon
to the date of purchase (subject to the right of Holders of record on the
relevant Record Date to receive interest due on the relevant Interest Payment
Date), in accordance with the procedures set forth in Article 3 of this
Indenture and the agreements governing such pari passu Indebtedness. To the
extent that any Excess Proceeds remain after consummation of an Asset Sale
Offer, the Company may use such Excess Proceeds for any purpose not otherwise
prohibited by this Indenture. If the aggregate principal amount of Notes and
pari passu Indebtedness tendered into such Asset Sale Offer surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Notes and pari passu Indebtedness to be purchased on a pro rata basis in
proportion to the respective principal amounts (or accreted values in the case
of Indebtedness issued with an original issue discount) of the Notes and such
other Indebtedness. Upon completion of such Asset Sale Offer, the amount of
Excess Proceeds shall be reset at zero for purposes of the first sentence of
this paragraph.
The amount of (x) any liabilities (as shown on the Company's
(or such Restricted Subsidiary's, as the case may be) most recent balance
sheet), other than Subordinated Indebtedness of the Company or any Restricted
Subsidiary that are assumed by the transferee of any such assets pursuant to an
agreement that immediately releases the Company and all of its Restricted
Subsidiaries from all liability in respect thereof, (y) Indebtedness of any
Restricted Subsidiary that is no longer a Restricted Subsidiary as a result of
such Asset Sale, if the Company and all of its Restricted Subsidiaries are
immediately released from all Guarantees of payment of such Indebtedness and
such Indebtedness is no longer the liability of the Company or any of its
Restricted
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Subsidiaries, and (z) any securities, notes or other obligations
received by the Company (or such Restricted Subsidiary, as the case may be) from
such transferee that are contemporaneously (subject to ordinary settlement
periods) converted by the Company (or such Restricted Subsidiary, as the case
may be) into cash and/or Cash Equivalents (to the extent of the cash and/or Cash
Equivalents received), will be deemed to be cash and/or Cash Equivalents for
purposes of this provision.
To the extent that the provisions of any securities laws or
regulations shall conflict with the Asset Sale provisions of this Indenture, the
Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the Asset Sale
provisions of this Indenture by virtue thereof.
SECTION 4.11 TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any 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 not materially less
favorable to the Company or the relevant Restricted Subsidiary than those that
would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person and (ii) with respect to any
Affiliate Transaction or series of related Affiliate Transactions (A) involving
aggregate consideration in excess of $5.0 million, the Company delivers to the
Trustee a resolution of the Board of Directors set forth in an Officers'
Certificate that such Affiliate Transaction is approved by a majority of the
disinterested members of the Board of Directors and that, except with respect to
matters governed by the Management Agreement, certifying that such Affiliate
Transaction complies with clause (i) above and is in the best interests of the
Company or such Restricted Subsidiary and (B) if involving aggregate
consideration in excess of $15.0 million, a favorable written opinion as to the
fairness to the Company of such Affiliate Transaction from a financial point of
view is also obtained by the Company from an accounting, appraisal or investment
banking firm of national standing. Notwithstanding the foregoing, the following
items shall not be deemed to be Affiliate Transactions: (i) (a) the entering
into, maintaining or performance of any employment contract, collective
bargaining agreement, benefit
plan, program or arrangement, related trust agreement or any other similar
arrangement for or with any employee, officer or director heretofore or
hereafter entered into in the ordinary course of business, including vacation,
health, insurance, deferred compensation, retirement, savings or other similar
plans, (b) the payment of compensation, performance of indemnification or
contribution obligations, or an issuance, grant or award of stock, options, or
other equity-related interests or other securities, to employees, officers or
directors in the ordinary course of business, (c) any transaction with an
officer or director in the ordinary course of business not involving more than
$100,000 in any one case, or (d) Management Advances and payments in respect
thereof, (ii) transactions between or among the Company and/or its Restricted
Subsidiaries, (iii) payment of reasonable directors fees, (iv) any sale or other
issuance of Equity Interests (other than Disqualified Stock) of the Company, (v)
Affiliate Transactions in effect or approved by the Board of Directors on the
Issue Date, including any amendments thereto (provided that the terms
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of such amendments are not materially less favorable to the Company than the
terms of such agreement prior to such amendment), (vi) transactions with respect
to capacity between the Company or any Restricted Subsidiary and any
Unrestricted Subsidiary or other Affiliate and joint sales and marketing
pursuant to an agreement or agreements between the Company or any Restricted
Subsidiary and any Unrestricted Subsidiary or other Affiliate (provided that in
the case of this clause (vi), such agreements are on terms that are no less
favorable to the Company or the relevant Restricted Subsidiary than those that
could have been obtained at the time of such transaction in an arm's-length
transaction with an unrelated third party or, in the case of a transaction with
an Unrestricted Subsidiary, ION or another Affiliate, are either (x) entered
into in connection with a transaction involving the selection by a customer of
cable system capacity entered into in the ordinary course of business or (y)
involve the provision by the Company or a Restricted Subsidiary to an
Unrestricted Subsidiary, ION or another Affiliate of sales and marketing
services, operations, administration and maintenance services or development
services for which the Company or such Restricted Subsidiary receives a fair
rate of return (as determined by the Board of Directors and set forth in an
Officers' Certificate delivered to the Trustee) above its expenses of providing
such services), and (vii) Restricted Payments that are permitted by Section 4.07
hereof.
SECTION 4.12 LIENS.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
otherwise cause or suffer to exist or become effective any Lien of any kind
(other than Permitted Liens) upon any of their property or assets, now owned or
hereafter acquired, or upon any income or profits therefrom unless all payments
due under this Indenture and the Notes are secured (except as provided in the
next clause) on an equal and ratable basis with the obligations so secured and
no Lien shall be granted or be allowed to exist which secures Subordinated
Indebtedness except with respect to Acquired Debt, in which case, however, such
Liens must be made junior and subordinate to the Liens granted to the Holders of
the Notes.
SECTION 4.13 CORPORATE EXISTENCE.
Subject to Article 5 hereof, the Company shall do or cause to
be done all things necessary to preserve and keep in full force and effect (i)
its corporate existence, and the corporate, partnership or other existence of
each of its Subsidiaries, in accordance with the respective organizational
documents (as the same may be amended from time to time) of the Company or any
such Subsidiary and (ii) the rights (charter and statutory), licenses and
franchises of the Company and its Subsidiaries; 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 of its Subsidiaries, if
the Board of Directors shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and its
Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any
material respect to the Holders of the Notes.
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SECTION 4.14 CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, each Holder of
Notes will have the right to require the Company to purchase all or any part
(equal to $1,000 or an integral multiple thereof) of such Holder's Notes
pursuant to the offer described below (the "Change of Control Offer") at a
purchase price in cash equal to 101% of the aggregate principal amount thereof
(the "Change of Control Payment") plus accrued and unpaid interest (and
Liquidated Damages, if any) thereon to the date of purchase (subject to the
right of Holders of record on the relevant Record Date to receive interest due
on the relevant Interest Payment Date), provided, however, that the Company
shall not be obligated to repurchase Notes pursuant to this covenant in the
event that it has exercised its rights to redeem all of the Notes as describe in
Section 3.07 hereof. Within 30 days following any Change of Control, the Company
will mail a notice to each Holder (with a copy to the Trustee) describing the
transaction or transactions that constitute the Change of Control and offering
to purchase Notes on the date specified in such notice, which date shall be no
earlier than 30 and no later than 60 days from the date such notice is mailed
(the "Change of Control Payment Date"), in accordance with the procedures
required by this Indenture and described in such notice.
The Company will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations to the
extent such laws and regulations are applicable in connection with the purchase
of Notes as a result of a Change of Control. To the extent that the provisions
of any securities laws or regulations conflict with any of the provisions of
this Section 4.14, the Company will comply with the applicable securities laws
and regulations and will be deemed not to have breached its obligations under
this covenant by virtue thereof.
(b) On the Change of Control Payment Date, the Company will,
to the extent lawful, (1) accept for payment all Notes or portions thereof
properly tendered pursuant to the Change of Control Offer, (2) deposit with the
Paying Agent an amount equal to the Change of Control Payment plus accrued and
unpaid interest thereon and Liquidated Damages, if any, in respect of all Notes
or portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee 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 or deliver to each Holder of Notes
so tendered the Change of Control Payment plus accrued and unpaid interest
thereon and Liquidated Damages, if any, for such Notes, and upon written
direction of the Company, the Trustee will promptly authenticate and mail or
deliver (or cause to be transferred by book entry) to each Holder a new Note
equal in principal amount to any unpurchased portion of Notes surrendered, if
any; provided that each such new Note will be in a principal amount of $1,000 or
an integral multiple thereof. The Company will publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.
(c) Notwithstanding anything to the contrary set forth in this
Section 4.14, the Company shall not be required to make a Change of Control
Offer upon the occurrence of a Change of Control if a third party makes the
Change of Control Offer in the manner, at the times and otherwise in compliance
with the requirements set forth in this Section 4.14, and purchases all Notes
validly tendered and not withdrawn under such Change of Control Offer.
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SECTION 4.15 BUSINESS ACTIVITIES.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, engage, to more than a de minimus extent, in any
business other than a Telecommunications Business.
SECTION 4.16 PAYMENTS FOR CONSENT.
Neither the Company nor any of its Restricted Subsidiaries
shall, 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 this 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 amend such terms or provisions of this Indenture or the Notes in the time
frame set forth in the solicitation documents relating to such consent, waiver
or agreement.
SECTION 4.17 MONEY FOR PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent,
it will, on or before each due date of the principal, premium, interest or
Liquidated Damages, if any, with respect to the Notes, segregate and hold in
trust for the benefit of the Persons entitled thereto a sum sufficient to pay
the principal, premium, interest or Liquidated Damages, if any, so becoming due
until such sums shall be paid to such Persons or otherwise disposed of as herein
provided, and will promptly notify the Trustee of its action or failure so to
act.
Whenever the Company shall have one or more Paying Agents for
the Notes, it will, on or before each due date of the principal, premium,
interest or Liquidated Damages, if any, with respect to the Notes, deposit with
a Paying Agent a sum in same day funds (or New York Clearing House funds if such
deposit is made prior to the date on which such deposit is required to be made)
sufficient to pay the principal, premium, interest or Liquidated Damages, if
any, so becoming due (or at the option of the Company, payment of interest may
be mailed by check 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 represented by one or more permanent global Notes will be paid
by wire transfer of immediately available funds to the account of the Depository
Trust Company or any successor thereto) such sum to be held in trust for the
benefit of the Persons entitled to such principal, premium, interest or
Liquidated Damages, if any, and (unless such Paying Agent is the Trustee) the
Company will promptly notify the Trustee of such action or any failure so to
act.
The Company will cause each Paying Agent other than the
Trustee to execute and deliver to the Trustee an instrument in which such Paying
Agent shall agree with the Trustee, subject to the provisions of this Section,
that such Paying Agent will:
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(a) hold all sums held by it for the payment of the principal of,
premium, if any, or interest on Notes in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or otherwise
disposed of as herein provided;
(b) give the Trustee written notice of any default by the Company (or
any other obligor upon the Notes) in the making of any payment of principal,
premium, interest or Liquidated Damages, if any;
(c) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent; and
(d) acknowledge, accept and agree to comply in all respects with the
provisions of this Indenture relating to the duties, rights and obligations of
such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
direct any Paying Agent to pay, to the Trustee all sums held in trust by the
Company or such Paying Agent, such sums to be held by the Trustee upon the same
trusts as those upon which such sums were held by the Company or such Paying
Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal, premium,
interest or Liquidated Damages, if any, with respect to a Note and remaining
unclaimed for two years after such principal, premium, if any, or interest has
become due and payable shall be paid to the Company at the written request of
the Company or (if then held by the Company) shall be discharged from such
trust; and the Holder of such Note shall thereafter, as an unsecured general
creditor, look only to the Company for payment thereof, and all liability of the
Trustee or such Paying Agent with respect to such trust money, and all liability
of the Company as trustee thereof, shall thereupon cease; provided, however,
that the Trustee or such Paying Agent, before being required to make any such
repayment, shall at the expense of the Company cause notice to be promptly sent
to each Holder that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
notification any unclaimed balance of such money then remaining will be repaid
to the Company.
ARTICLE 5.
SUCCESSORS
SECTION 5.1 MERGER, CONSOLIDATION, OR SALE OF ASSETS.
(a) The Company shall not, directly or indirectly, consolidate
or merge with or into (whether or not the Company is the surviving corporation),
or sell, assign, transfer, convey or otherwise dispose of all or substantially
all of its properties or assets, in one or more related transactions, to another
Person unless: (i) the Company is the surviving corporation or the Person
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formed by or surviving any such consolidation or merger (if other than the
Company) or to which such sale, assignment, transfer, 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 Person formed by or surviving any such consolidation or merger (if
other than the Company) or the Person to which such sale, assignment, transfer,
conveyance or other disposition shall have been made assumes all the obligations
of the Company under the Registration Rights Agreement, the Notes, the Exchange
Notes and this Indenture pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee; (iii) no Default or Event of Default (
or an event that, with the passing of time or giving of notice or both, would
constitute an Event of Default) shall exist or shall occur immediately after
giving effect on a pro forma basis to such transaction; (iv) except in the case
of a merger of the Company with or into a Wholly Owned Restricted Subsidiary of
the Company, the Company or the Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, conveyance or other disposition shall have been made will
immediately after such transaction and after giving pro forma effect thereto and
any related financing transactions as if the same had occurred at the beginning
of the applicable period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to either clause (i) or (ii) of the first paragraph of
Section 4.09 hereof; (v) if, as a result of any such transaction, property or
assets of the Company would become subject to a Lien subject to the provisions
of Section 4.12 hereof, the Company or the successor entity to the Company shall
have secured the Notes as required by said covenant; and (vi) the Company shall
have delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger or transfer and such
supplemental indenture (if any) comply with the Indenture. The Company shall
not, directly or indirectly, lease all or substantially all of its properties or
assets, in one or more related transactions, to any other Person. The provisions
of this covenant will not be applicable to a sale, assignment, transfer,
conveyance or other disposition of assets solely between or among the Company
and its Wholly Owned Restricted Subsidiaries.
(b) For purposes of this Article 5, the transfer (by
assignment, sale or otherwise) of all or substantially all of the properties and
assets of one or more Subsidiaries, the Company's interest in which constitutes
all or substantially all of the properties and assets of the Company, shall be
deemed to be the transfer of all or substantially all of the properties and
assets of the Company.
SECTION 5.2 SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger or any transfer of all or
substantially all of the assets of the Company in accordance with Section 5.01
hereof, the successor Person formed by such consolidation or into which the
Company is merged or to which such transfer is made shall succeed to and (except
in the case of a lease) be substituted for (so that from and after the date of
such consolidation, merger or transfer, the provisions of this Indenture
referring to the "Company" shall refer instead to the successor Person and not
to 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
herein as the Company, and (except in the case of a lease) the Company shall be
released from the obligations under the Notes and this Indenture except with
respect to any obligations that arise from, or are related to, such transaction.
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ARTICLE 6.
DEFAULTS AND REMEDIES
SECTION 6.1 EVENTS OF DEFAULT.
"Event of Defaults" are:
(i) default for 30 days in the payment when due of interest on
the Notes;
(ii) default in the payment when due of the principal of, or
premium, if any, on the Notes;
(iii) failure by the Company or any of its Restricted
Subsidiaries to comply with Sections 4.10 or 4.14;
(iv) failure by the Company or any of its Restricted
Subsidiaries for 60 days after notice to comply with any of its other
agreements in this 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
Restricted Subsidiaries (or the payment of which is Guaranteed by the
Company or any of its Restricted Subsidiaries) whether such
Indebtedness or Guarantee now exists, or is created after the Issue
Date, which default results in the acceleration of such Indebtedness
prior to its express maturity and, in each case, the amount
of any such Indebtedness, together with the amount of any other such
Indebtedness or the maturity of which has been so accelerated,
aggregates $15.0 million or more;
(vi) failure by the Company or any of its Restricted
Subsidiaries to pay final judgments not subject to appeal aggregating
in excess of $15.0 million (net of applicable insurance coverage which
is acknowledged in writing by the insurer), which judgments are not
paid, vacated, discharged or stayed for a period of 60 days;
(vii) the Company or any of its Restricted Subsidiaries:
(a) commences a voluntary case under any Bankruptcy Law,
(b) consents to the entry of an order for relief against it in
an involuntary case under any Bankruptcy Law,
(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
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(e) generally is not paying its debts as they become due; and
(viii) 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 Restricted
Subsidiaries
(b) appoints a custodian of the Company or any of its
Restricted Subsidiaries or for all or substantially all of the property
of the Company or any of its Restricted Subsidiaries; or
(c) orders the liquidation of the Company or any of its
Restricted Subsidiaries;
and the order or decree remains unstayed and in effect for 60
consecutive days.
SECTION 6.2 ACCELERATION
If any Event of Default occurs and is continuing, the Trustee
or the Holders of at least 25% in aggregate principal amount of the then
outstanding Notes may declare all the Notes to be due and payable immediately.
Notwithstanding the foregoing, if an Event of Default specified in clause (vii)
or (viii) of Section 6.01 hereof occurs with respect to the Company, any of its
Restricted Subsidiaries that constitutes a Significant Subsidiary or any group
of Restricted Subsidiaries that, taken as a whole, would constitute a
Significant Subsidiary, all outstanding Notes shall be due and payable
immediately without further action or notice. The Holders of a majority in
aggregate principal amount of the then outstanding Notes by written notice to
the Trustee may on behalf of all of the Holders 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 premium 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 pursue any available remedy to collect the payment of principal, premium, if
any, and interest and Liquidated Damages, if any, on the Notes or to enforce the
performance of any provision of the Notes or this Indenture.
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 a Note 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.
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SECTION 6.4 WAIVER OF PAST DEFAULTS.
Holders of not less than a majority in aggregate principal
amount of the then outstanding Notes (or, with respect to a provision of this
Indenture that may only be amended by the Holders of not less than 662/3% in
aggregate principal amount of the then outstanding Notes, the Holders of not
less than 662/3% in aggregate principal amount of the then outstanding Notes) by
written notice to the Trustee may on behalf of the Holders of all of the Notes
waive an existing Default or Event of Default and its consequences hereunder,
except a continuing Default or Event of Default in the payment of the principal
of, premium and Liquidated Damages, if any, or interest on, the Notes (including
in connection with an offer to purchase). 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.
SECTION 6.5 CONTROL BY MAJORITY.
Holders of Notes may not enforce this Indenture or the Notes
except as provided herein. Holders of a majority in principal amount of the then
outstanding Notes may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee or exercising any
trust or power conferred on it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture or 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.
SECTION 6.6 LIMITATION ON SUITS.
A Holder of a Note may pursue a remedy with respect to this
Indenture or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the remedy;
(c) such Holder of a Note or Holders of Notes offer and, if requested,
provide to the Trustee indemnity satisfactory to the Trustee against any loss,
liability or expense;
(d) 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
(e) 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.
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A Holder of a Note may not use this Indenture to prejudice the
rights of another Holder of a Note or to obtain a preference or priority over
another Holder of a Note.
SECTION 6.7 RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the
right of any Holder of a Note to receive payment of principal, premium and
Liquidated Damages, if any, and interest on the Note, on or after the respective
due dates expressed in the Note (including in connection with an offer to
purchase), 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 6.01(i) or (ii)
hereof occurs and is continuing, the Trustee is authorized to recover judgment
in its own name and as trustee of an express trust against the Company for the
whole amount of principal of, premium and Liquidated Damages, if any, and
interest 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 the Notes allowed in any judicial proceedings relative to the
Company (or any other obligor upon the Notes), its creditors or its property and
shall be entitled and empowered to participate as a member, voting or otherwise,
of any official committee of creditors appointed in such matter 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 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, 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 7.07 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 7.07 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 that the Holders 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 any plan of reorganization,
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arrangement, adjustment or composition affecting the Notes or the rights of any
Holder, or to authorize the Trustee to vote in respect of the claim of any
Holder in any such proceeding.
SECTION 6.10 PRIORITIES.
If the Trustee collects any money pursuant to this Article 6,
it shall pay out the money in the following order:
First: to the Trustee, its agents and counsel for amounts due
under Section 7.07 hereof, 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 and Liquidated Damages, if any, and interest,
ratably, without preference or priority of any kind, according to the amounts
due and payable on the Notes for principal, premium and Liquidated Damages, if
any, and interest, respectively, and
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 pursuant to this Section 6.10.
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 cost 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 6.11 does not apply to a suit by the Trustee, a suit by a
Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more
than 10% in principal amount of the then outstanding Notes.
ARTICLE 7.
TRUSTEE
SECTION 7.1 DUTIES OF TRUSTEE.
(a) If an Event of Default 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 its exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
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(b) Except during the occurrence and continuance of an Event of
Default:
(i) the duties of the Trustee shall be determined solely by
the express provisions of this Indenture and the Trustee need perform
only those duties that are specifically set forth in this Indenture and
no others, and no implied covenants or obligations shall be read into
this Indenture against the Trustee; and
(ii) 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 be opinions expressed therein, upon certificates (or
similar documents) or opinions furnished to the Trustee and conforming
to the requirements of this Indenture. However, the Trustee shall
examine the certificates (or similar documents) and opinions to
determine whether or not they conform to the requirements of this
Indenture (but need not confirm or investigate the accuracy of
mathematical calculations or other facts stated therein or otherwise
verify the contents thereof).
(c) The Trustee may not be relieved from liabilities for its own
grossly negligent action, its own grossly negligent failure to act, or its own
willful misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b)
of this Section 7.01;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved that
the Trustee was grossly negligent in ascertaining the pertinent facts;
and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), (c) and (e) of this Section 7.01.
(e) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or incur any liability. The Trustee shall be under no
obligation to exercise any of its rights and powers under this Indenture at be
request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or expense
including reasonable attorneys' fees that might be incurred by it in compliance
with such request or direction.
(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
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SECTION 7.2 RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely upon any 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 any such document. The
Trustee shall receive and retain financial reports and statements of the Company
as provided herein, but it shall have no duty to review or analyze such reports
or statements to determine compliance with covenants or other obligations of the
Company.
(b) 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 of its selection and the 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.
(c) The Trustee may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any such attorney or agent
appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) 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.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
(g) Prior to the occurrence of an Event of Default hereunder and after
the curing of all Events of Default which may have occurred, the Trustee shall
not be bound to make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report, notice,
request, order, approval, bond or other paper or document unless requested in
writing to do so by the Holders representing more than 25% in aggregate
principal amount of Notes then outstanding; provided, however, that if the
payment within a reasonable time to the Trustee of the costs, expenses or
liabilities likely to be incurred by it in the making of such investigation is,
in the opinion of the Trustee, not reasonably assured to the Trustee by the
security afforded to it by the terms of this Indenture, the Trustee may require
indemnity reasonably satisfactory to it against such cost, expense or liability
as a condition to so proceeding.
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SECTION 7.3 INDIVIDUAL 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 any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue as trustee or resign. Any Agent may do the same with like
rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof
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 of this Indenture, 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.
(a) The Trustee shall not be deemed to have notice of any Default or
Event of Default unless a Responsible Officer of the Trustee has actual
knowledge thereof or unless written notice of any event which is in fact such a
default is received by the Trustee at the Corporate Trust Office of the Trustee,
and such notice references the Notes and this Indenture.
(b) If a Default or Event of Default occurs and is continuing and if it
is known to the Trustee in accordance with the provisions of paragraph (a) of
this Section 7.05, the Trustee shall mail to Holders of Notes a notice of the
Default or Event of Default within 90 days after it occurs. Except in the case
of a Default or Event of Default in payment of principal of, premium, if any, or
interest on any Note, the Trustee may withhold the notice if and so long as a
committee of its Responsible Officers in good faith determines that withholding
the notice is in the interests of the Holders of the Notes.
SECTION 7.6 REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each May 15 beginning with the May 15
following the date of this Indenture, and for so long as Notes remain
outstanding, the Trustee shall mail to the Holders of the 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).
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A copy of each report at the time of its mailing to the
Holders of Notes shall be mailed to the Company and filed with the SEC and each
stock exchange on which the Notes are listed in accordance with TIA Section
313(d). The Company shall promptly notify the Trustee when the Notes are listed
on any stock exchange.
SECTION 7.7 COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time such
compensation for its acceptance of this Indenture and services hereunder as the
parties shall agree from time to time. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The Company
shall reimburse the Trustee promptly upon request for all reasonable
disbursements, advances and expenses incurred or made by it in addition to the
compensation for its services. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee and hold it harmless
against any and all losses, liabilities or expenses incurred by it arising out
of or in connection with the acceptance or administration of its duties under
this Indenture, including the costs and expenses of enforcing this Indenture
against the Company (including this Section 7.07) and defending itself against
any claim (whether asserted by the Company or any Holder or any other person) or
liability in connection with the exercise or performance of any of its powers or
duties hereunder, except to the extent any such loss, liability or expense may
be attributable to its gross negligence or bad faith. 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. 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 or delayed.
The obligations of the Company under this Section 7.07 shall
survive the satisfaction and discharge of this Indenture or the resignation or
removal of the Trustee.
To secure the Company's payment obligations in this Section,
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 6.01 (vii) or (viii) hereof occurs, the
expenses and the compensation for the services (including the fees and expenses
of its agents and counsel) are intended to constitute expenses of administration
under any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA Section
313(b)(2) to the extent applicable.
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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 7.08.
The Trustee may resign in writing at any time and be
discharged from the trust hereby created by so notifying the Company. The
Holders of Notes 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:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) 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;
(c) a custodian or public officer takes charge of the Trustee or its
property; or
(d) 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 Trustee in such event being referred
to herein as the retiring Trustee), 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 Notes 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 a Note
who has been a Holder of a Note for at least six months, fails to comply with
Section 7.10 hereof, such Holder of a Note may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
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 the 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 7.07 hereof. Notwithstanding replacement of the Trustee pursuant
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to this Section 7.08, the Company's obligations under Section 7.07 hereof shall
continue for the benefit of the retiring Trustee.
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.
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a
corporation organized and doing business under the laws of the United States of
America or of any state thereof that is authorized under such laws to exercise
corporate trustee power, that is subject to supervision or examination by
federal or state authorities and that has a combined capital and surplus of at
least $100.0 million as set forth in its most recent published annual report of
condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (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 its Board of Directors
evidenced by a resolution set forth in an Officers' Certificate, at any time,
elect to have either Section 8.02 or 8.03 hereof applied to all outstanding
Notes upon compliance with the conditions set forth below in this Article 8.
SECTION 8.2 LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of the
option applicable to this Section 8.02, the Company shall, subject to the
satisfaction of the conditions set forth in Section 8.04 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
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deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the
other Sections of this Indenture referred to in (a) and (b) below, and to have
satisfied all of its obligations under such Notes and this Indenture (and the
Trustee, on demand of and at the expense of the Company, shall execute proper
instruments delivered to it 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
payments in respect of the principal of, premium, if any, and interest on such
Notes when such payments are due from the trust referred to below; (b) 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; (c) the rights, powers, trusts, duties and immunities of the
Trustee, and the Company's obligations in connection therewith; and (d) the
Legal Defeasance provisions of this Indenture. Subject to compliance with this
Article 8, the Company may exercise its option under this Section 8.02
notwithstanding the prior exercise of its option under Section 8.03 hereof.
SECTION 8.3 COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the
option applicable to this Section 8.03, the Company shall, subject to the
satisfaction of the conditions set forth in Section 8.04 hereof, be released
from its obligations under the covenants contained in Article V and in Sections
4.03, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15 and 4.16 hereof with
respect to the outstanding Notes on and after the date the conditions set forth
in Section 8.04 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 to any such covenant or by reason of any reference in any such covenant
to any other provision herein or in any other document and such omission to
comply shall not constitute a Default or an Event of Default under Section 6.01
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 8.01 hereof of the option applicable to this Section 8.03, subject
to the satisfaction of the conditions set forth in Section 8.04 hereof, Sections
6.01(iii) through 6.01(vi) hereof shall not constitute Events of Default.
SECTION 8.4 CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of
either Section 8.02 or 8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant
Defeasance:
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(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
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, premium, if
any, and interest on the outstanding Notes on the stated maturity thereof 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;
(b) in the case of Legal Defeasance, the Company must deliver to the
Trustee an Opinion of Counsel in the United States reasonably acceptable to the
Trustee confirming that, since the Issue Date, the Company has received from, or
there has been published by, the Internal Revenue Service a ruling, or there has
been a change in the applicable United States 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 United States federal income tax purposes as a result of such Legal
Defeasance, and will be subject to United States 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 Covenant Defeasance, the Company must deliver 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 United States federal income tax purposes as a result
of such Covenant Defeasance, and such Holders will be subject to United States
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 (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;
(e) such Legal Defeasance or Covenant Defeasance will 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
Restricted Subsidiaries is a party or by which the Company or any of its
Restricted Subsidiaries is bound;
(f) the Company must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the Holders of the Notes over other creditors of the Company, or with
the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others;
(g) the Company must deliver to the Trustee an Officers' Certificate
and an Opinion of Counsel in the United States reasonably acceptable to the
Trustee, each stating that the conditions precedent provided for or relating to
Legal Defeasance or Covenant Defeasance, as applicable, in
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the case of the Officers' Certificate, in clauses (a) through (f) and, in the
case of the Opinion of Counsel, in clauses (b) and (c) of this paragraph, have
been complied with.
SECTION 8.5 DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER
MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and non-callable
Government Securities (including the proceeds thereof) deposited with the
Trustee (or other qualifying trustee, collectively, and solely for purposes of
this Section 8.05, the "Trustee") pursuant to Section 8.04 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, if any, and
interest, but such money 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 8.04 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.
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 8.04 hereof which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee (which may be the opinion
delivered under Section 8.04(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.
SECTION 8.6 REPAYMENT TO COMPANY.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of, premium,
interest or Liquidated Damages, if any, on any Note and remaining unclaimed for
two years after such principal, and premium, if any, interest or Liquidated
Damages has become due and payable shall be paid to the Company on its request
or (if then held by the Company) shall be discharged from such trust; and the
Holder of such Note shall thereafter, as an unsecured creditor, look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease; provided, however, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in the New York Times and The
Wall Street Journal (national edition), notice that such money remains unclaimed
and that, after a date specified therein, which
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shall not be less than 30 days from the date of such notification or
publication, any unclaimed balance of such money then remaining will be repaid
to the Company.
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
8.02 or 8.03 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 8.02 or 8.03 hereof until such time as the Trustee
or Paying Agent is permitted to apply all such money in accordance with Section
8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Company
makes any payment of principal of, premium, if any, interest or Liquidated
Damages 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 SURVIVAL.
The Trustee's rights under this Article 8 shall survive
termination of this Indenture.
ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.1 WITHOUT CONSENT OF HOLDERS OF NOTES
Notwithstanding Section 9.02 hereof, the Company and the
Trustee may amend or supplement this Indenture or the Notes without the consent
of any Holder of a Note:
(a) to cure any ambiguity, omission, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place of
certificated Notes or to alter the provisions of Article 2 hereof (including the
related definitions) in a manner that does not materially adversely affect any
Holder;
(c) to provide for the assumption of the Company obligations to the
Holders of the Notes by a successor to the Company pursuant to Article 5 hereof;
(d) 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 Note;
(e) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA;
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(f) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the Company;
(g) to provide for the issuance of the Unrestricted Notes under the
Exchange Offer contemplated by the Registration Rights Agreement; or
(h) to effect any change to the transfer and exchange restrictions and
security delivery procedures contained in Article 2 in order to conform with
changes in any applicable law or Applicable Procedures.
Upon the request of the Company accompanied by a resolution of
its Board of Directors authorizing the execution of any such amended or
supplemental indenture, and upon receipt by the Trustee of the documents
described in Section 7.02 hereof, the Trustee shall join with the Company in the
execution of any amended or supplemental indenture authorized or permitted by
the terms of this Indenture and to make any further appropriate agreements and
stipulations that may be therein contained, but the Trustee shall not be
obligated to enter into such amended or supplemental indenture that affects its
own rights, duties or immunities under this Indenture or otherwise.
SECTION 9.2 WITH CONSENT OF HOLDERS OF NOTES.
Except as provided below in this Section 9.02, the Company and
the Trustee, may amend or supplement this Indenture (including Section 3.09 and
4.10 hereof) and the Notes with the consent of the Holders of a majority in
aggregate principal amount of the then outstanding Notes voting as a single
class (including consents obtained in connection with a tender offer or exchange
offer for, or purchase of, the Notes), and, subject to Sections 6.04 and 6.07
hereof, any existing Default or Event of Default (other than a Default or Event
of Default in the payment of the principal of, premium, if any, or interest on
the Notes, except a payment default resulting from an acceleration that has been
rescinded) or compliance with any provision of this Indenture or the Notes may
be waived with the consent of the Holders of a majority in aggregate principal
amount of the then outstanding Notes voting as a single class (including
consents obtained in connection with a tender offer or exchange offer for, or
purchase of, the Notes).
Notwithstanding the foregoing, without the consent of
Holders of at least 66 2/3% in principal amount of the then outstanding Notes
voting as a single class, the Company and the Trustee may not: (i) modify the
provisions (including the defined terms used therein) of Section 4.14 hereof
in a manner adverse to the Holders or (ii), except with respect to the Lien
on the Security Account, release or modify a Lien granted to the Holders of
the Notes.
Upon the request of the Company accompanied by a resolution of
its Board of Directors authorizing the execution of any such amended or
supplemental indenture, 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 7.02
hereof, the
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Trustee shall join with the Company in the execution of such amended or
supplemental indenture unless such amended or supplemental indenture directly
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 amended or supplemental indenture.
It shall not be necessary for the consent of the Holders of
Notes under this Section 9.02 to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section
9.02 becomes effective, the Company shall mail to the Holders of Notes affected
thereby a notice briefly describing the amendment, supplement 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 amended or
supplemental indenture or waiver. Subject to the provisions of this Section 9.02
and Sections 6.04 and 6.07 hereof, the Holders of a majority in aggregate
principal amount of the Notes then outstanding voting as a single class 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
affected, an amendment or waiver under this Section 9.02 may not (with respect
to any Notes held by a non-consenting Holder):
(a) change the Stated Maturity on any Note, or reduce the principal
thereof or the rate (or extend the time for payment) of interest thereon or any
premium payable upon the redemption at the option of the Company thereof, or
change the place of payment where, or the coin or currency in which, any Note or
any premium or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment on or after the Stated Maturity
thereof (or, in the case of redemption at the option of the Company, on or after
the redemption date), or reduce the Change of Control Payment or the Asset Sale
Offer Price after the corresponding Asset Sale or Change of Control has
occurred;
(b) alter the provisions (including the defined terms used herein)
regarding the right of the Company to redeem the Notes as a right, or at the
option, of the Company in a manner adverse to the Holders;
(c) reduce the percentage in principal amount of Notes outstanding
whose Holders must consent to an amendment, supplement or waiver provided for in
this Indenture;
(d) modify any of the waiver provisions, except to increase any
required percentage or to provide that certain other provisions of this
Indenture cannot be modified or waived without the consent of the Holder of each
outstanding Note affected thereby;
(e) cause the Notes to become subordinate in right of payment to any
other Indebtedness; or
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(f) release any funds from the Security Account in any manner
inconsistent with the provisions of the Security Agreement as in effect on the
Issue Date or modify any provision of the Security Agreement in a manner adverse
to the Holders of the Notes.
SECTION 9.3 COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Notes
shall be set forth in a amended or supplemental indenture that complies with the
TIA as then in effect.
SECTION 9.4 REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a Note is a continuing consent by the Holder of a
Note 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. However, any such Holder of a Note or subsequent Holder
of a Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder. An amendment or waiver shall
become effective upon receipt by the Trustee of the requisite number of written
consents under Section 9.01 or 9.02 as applicable.
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Holders of Notes entitled to give their
consent or take any other action described above or required or permitted to be
taken pursuant to this Indenture. If a record date is fixed, then
notwithstanding the immediately preceding paragraph, those Persons who held
Notes at such record date (or their duly designated proxies), and only those
Persons, shall be entitled to give such consent or to revoke any consent
previously given or to take any such action, whether or not such Persons
continue to be Holders after such record date.
SECTION 9.5 NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an
amendment, supplement or waiver on any Note thereafter authenticated. The
Company in exchange for all Notes may issue and the Trustee shall, upon receipt
of an Authentication Order, authenticate new Notes that reflect the amendment,
supplement or waiver.
Failure to make the appropriate notation or issue a new Note
shall not affect the validity and effect of such amendment, supplement or
waiver.
SECTION 9.6 TRUSTEE TO SIGN AMENDMENTS, ETC.
Trustee shall sign any amended or supplemental indenture
authorized pursuant to this Article 9 if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee
and all other conditions to the execution and delivery of such amendment
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or supplement set forth in this Article 9 are fulfilled. The Company may not
sign an amendment or supplemental indenture until the Board of Directors
approves it. In executing any amended or supplemental indenture, the Trustee
shall be entitled to receive and (subject to Section 7.01 hereof) shall be fully
protected in relying upon an Officer's Certificate and an Opinion of Counsel
stating that the execution of such amended or supplemental indenture is
authorized or permitted by this Indenture and that such amendment is the legal,
valid and binding obligation of the Company, enforceable against it in
accordance with its terms, subject to customary exceptions, and complies with
the provisions hereof (including Section 9.03).
ARTICLE 10.
SATISFACTION AND DISCHARGE
SECTION 10.1 SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall be discharged and will cease to be of
further effect as to all Notes issued hereunder, when either
(a) all such Notes theretofore authenticated and delivered (except
lost, stolen or destroyed Notes which have been replaced or paid and Notes for
whose payment money has theretofore been deposited in trust and thereafter
repaid to the Company) have been delivered to the Trustee for cancellation; or
(b) (i) all such Notes not theretofore delivered to such Trustee for
cancellation have become due and payable by reason of the
making of a notice of redemption, repurchase or otherwise or
will become due and payable within one year and the Company,
has irrevocably deposited or caused to be deposited with such
Trustee as trust funds in trust an amount of money sufficient
to pay and discharge the entire Indebtedness on such Notes not
theretofore delivered to the Trustee for cancellation for
principal, premium, accrued interest and Liquidated Damages,
if any, to the date of maturity, redemption or repurchase;
(ii) no Default or Event of Default with respect to this
Indenture or the Notes shall have occurred and be
continuing on the date of such deposit or shall occur as a
result of such deposit and such deposit mill not result in
a breach or violation of or constitute a default under, any
other instrument to which the Company is a party or by
which the Company is bound;
(iii) the Company has paid or caused to be paid all sums payable
by it under this Indenture; and
(iv) the Company has delivered irrevocable written instructions
to the Trustee under this Indenture to apply the deposited
money toward the payment of such Notes at maturity or the
redemption date, as the case may be.
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In addition, the Company must deliver an Officers' Certificate
and an Opinion of Counsel to the Trustee stating that all conditions precedent
to satisfaction and discharge have been satisfied.
SECTION 10.2 APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section
4.17 hereof, all money deposited with the Trustee pursuant to Section 10.01
hereof shall be held in trust and applied by it, in accordance with the
provisions of the 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 Persons entitled thereto, of the principal (and
premium, if any), interest and Liquidated Damages, if any, for whose payment
such money has been deposited with the Trustee.
If the Trustee or Paying Agent is unable to apply any money or
Government Securities in accordance with Section 10.01 hereof by reason of any
legal proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, the Company's obligations under this Indenture and the Notes shall
be revived and reinstated as though such deposit had occurred pursuant to
Section 10.01 hereof, provided that if the Company has made any payment of
principal of, premium, if any, or interest on any Notes because of 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 or
Government Securities held by the Trustee or Paying Agent.
ARTICLE 11.
SECURITY
SECTION 11.1 SECURITY
(a) On the Issue Date, the Company shall purchase, and at all times,
subject to the Security Agreement, pledge to the Trustee the Pledged Securities
as security for the benefit of the Holders. The Pledged Securities must be in
such amount together with the proceeds from the investment thereof, will be
sufficient in the opinion of a nationally recognized firm of independent public
accountants selected by the Company, to provide for payment in full of the first
three scheduled interest payments due on the outstanding Notes. The Pledged
Securities shall be pledged by the Company to the Trustee for the benefit of the
Holders pursuant to the Security Agreement and shall be held by the Trustee in
the Security Account pending disposition pursuant to the Security Agreement.
(b) Each Holder, by its acceptance of a Note, consents and agrees to
the terms of the Security Agreement (including, without limitation, the
provisions providing for foreclosure and release of the Pledged Securities) as
the same may be in effect or may be amended from time to time in accordance with
its terms, and authorizes and directs the Trustee to enter into the Security
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Agreement and to perform its respective obligations and exercise its respective
rights thereunder in accordance therewith. The Company shall do or cause to be
done all such acts and things as may be reasonably necessary or proper, or as
may be required by the provisions of the Security Agreement, to assure and
confirm to the Trustee the security interest in the Pledged Securities
contemplated hereby, by the Security Agreement or any part thereof, as from time
to time constituted, so as to render the same available for the security and
benefit of this Indenture and of the Notes secured hereby, according to the
intent and purposes herein expressed. The Company shall take, or shall cause to
be taken, any and all actions reasonably required (and any action reasonably
requested by the Trustee) to cause the Security Agreement to create and
maintain, as security for the obligations of the Company under this Indenture
and the Notes, valid and enforceable first priority liens in and on all the
Pledged Securities, in favor of the Trustee, superior to and prior to the rights
of third Persons and subject to no other Liens.
(c) The release of any Pledged Securities pursuant to the Security
Agreement will not be deemed to impair the security under this Indenture in
contravention of the provisions hereof if and to the extent the Pledged
Securities are released pursuant to this Indenture and the Security Agreement.
To the extent applicable, the Company shall cause TIA Section 314(d), relating
to the release of property or securities from the Lien and security interest of
the Security Agreement and relating to the substitution therefor of any property
or securities to be subjected to the Lien and security interest of the Security
Agreement, to be complied with. Any certificate or opinion required by TIA
Section 314(d) may be made by an officer of the Company, except in cases where
TIA Section 314(d) requires that such certificate or opinion be made by an
independent Person, which Person shall be an independent appraiser or other
expert selected or approved by the Company in the exercise of reasonable care.
(d) The Company shall cause TIA Section 314(b), relating to opinions of
counsel regarding the Lien under the Security Agreement, to be complied with.
The Trustee may, to the extent permitted by Section 7.02 hereof, accept as
conclusive evidence of compliance with the foregoing provisions the appropriate
statements contained in such instruments.
(e) The Trustee, in its sole discretion and without the consent of the
Holders, may, and at the request of the Holders of at least 25% in aggregate
principal amount of Notes then outstanding shall, on behalf of the Holders, take
all actions it deems necessary or appropriate in order to (i) enforce any of the
terms of the Security Agreement and (ii) collect and receive any and all amounts
payable in respect of the obligations of the Company thereunder. The Trustee
shall have power to institute and to maintain such suits and proceedings as the
Trustee may deem expedient to preserve or protect its interests and the
interests of the Holders in the Pledged Securities (including power to institute
and maintain suits or proceedings to restrain the enforcement of or compliance
with any legislative or other governmental enactment, rule or order that may be
unconstitutional or otherwise invalid if the enforcement of, or compliance with,
such enactment, rule or order would impair the security interest hereunder or be
prejudicial to the interest of the Holders or of the Trustee).
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ARTICLE 12.
MISCELLANEOUS
SECTION 12.1 TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or
conflicts with the duties imposed by TIA Section 318(c), the imposed duties
shall control.
SECTION 12.2 NOTICES.
Any notice or communication by the Company or the Trustee to
the others is duly given if in writing and delivered in Person or mailed by
first class mail (registered or certified, return receipt requested), telecopier
or overnight air courier guaranteeing next day delivery, to the others' address:
If to the Company:
Metromedia Fiber Network Services, Inc.
c/o Metromedia Fiber Network, Inc.
One North Lexington Avenue
White Plains, NY 10601
Attention: Chief Financial Officer
With a copy to:
Metromedia Company
One Meadowlands Plaza
East Rutherford, NJ 07073-2137
Attention: General Counsel
and a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: James M. Dubin, Esq.
If to the Trustee:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attention: Corporate Finance Trust Services
Facsimile Number: 212-858-2952
83
<PAGE>
With a copy to:
Kaye, Scholer, Fierman, Hays & Handler, LLP
425 Park Avenue
New York, New York 10022
Attention: Edward O'Connell, Esq.
The Company or the Trustee, by notice to the others may
designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to
Holders) 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 receipt acknowledged by the sender's
telecopier, if telecopied; 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 shall be mailed by
first class mail, certified or registered, return receipt requested, or by
overnight air courier guaranteeing next day delivery to its address shown on the
register kept by the Registrar. Any notice or communication shall also be so
mailed to any Person described in TIA Section 313(c), to the extent required by
the TIA. Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders.
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, except that any notice or communication to the Trustee shall be
deemed to have been duly given to the Trustee when received at the Corporate
Trust Office of the Trustee.
If the Company mails a notice or communication to Holders, it
shall mail a copy to the Trustee and each Agent at the same time.
SECTION 12.3 COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders may communicate pursuant to TIA Section 312(b) with
other Holders 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).
SECTION 12.4 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, except with respect to the initial
authentication of Notes on the date of this Indenture, the Company shall furnish
to the Trustee:
84
<PAGE>
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 12.05 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 satisfied; and
(b) an Opinion of Counsel in form and substance reasonably satisfactory
to the Trustee (which shall include the statements set forth in Section 12.05
hereof) stating that, in the opinion of such counsel, all such conditions
precedent and covenants have been satisfied.
SECTION 12.5 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 comply with the
provisions of TIA Section 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(b) 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;
(c) a statement that, in the opinion of such Person, he or she has or
they have 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 satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
SECTION 12.6 RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a
meeting of Holders. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for its functions.
SECTION 12.7 NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
SHAREHOLDERS.
No past, present or future director, officer, employee,
incorporator, agent or shareholder of the Company, as such, shall have any
liability for any obligations of the Company under the Notes, this 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 issuance of
the Notes.
85
<PAGE>
SECTION 12.8 GOVERNING LAW.
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 12.9 CONSENT TO JURISDICTION AND SERVICE.
To the fullest extent permitted by applicable law, the Company
hereby irrevocably submits to the jurisdiction of any Federal or State court
located in the Borough of Manhattan in The City of New York, New York in any
suit, action or proceeding based on or arising out of or relating to this
Agreement or any Notes or Exchange Notes, and irrevocably agree that all claims
in respect of such suit or proceeding may be determined in any such court. The
Company irrevocably waives, to the fullest extent permitted by law, any
objection which they may have to the laying of the venue of any such suit,
action or proceeding brought in such a court and any claim that any suit, action
or proceeding brought in such a court has been brought in an inconvenient forum.
The Company agrees that final judgment in any such suit, action or proceeding
brought in such a court shall be conclusive and binding upon the Company and may
be enforced in the courts of any jurisdiction to which the Company is subject by
a suit upon such judgment, provided that service of process is effected upon the
Company in the manner specified herein or as otherwise permitted by law. To the
extent that the Company has or hereafter may acquire any immunity from
jurisdiction of any court or from any legal process (whether through service of
now, attachment prior to judgment, attachment in aid of execution, executor or
otherwise) with respect to itself or its property, the Company hereby
irrevocably waives such immunity in respect of their respective obligations
under this Agreement, to the extent permitted by law.
SECTION 12.10 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other
indenture, loan or debt agreement of the Company or its Subsidiaries or of any
other Person. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.
SECTION 12.11 SUCCESSORS.
All agreements of the Company in this Indenture and the Notes
shall bind its successors. All agreements of the Trustee in this Indenture shall
bind its successors.
SECTION 12.12 SEVERABILITY.
In case any provision in this Indenture or in the Notes 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.
86
<PAGE>
SECTION 12.13 COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together represent the
same agreement.
SECTION 12.14 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 of this Indenture and shall
in no way modify or restrict any of the terms or provisions hereof.
[Indenture signature pages (s) follow]
87
<PAGE>
[Indenture signature page(s)]
Dated as of November 25, 1998
METROMEDIA FIBER NETWORK, INC.
By:
----------------------------------
Name:
Title:
IBJ SCHRODER BANK &
TRUST COMPANY,
as Trustee
By: /s/ Stephen J. Giurlando
----------------------------------
Name: Stephen J. Giurlando
Title: Assistant Vice President
<PAGE>
EXHIBIT A-1
(Face of Note)
[Insert the Global Note Legend, if applicable pursuant to the provisions of the
Indenture]
[Insert the Private Placement Legend, if applicable pursuant to the provisions
of the Indenture]
CUSIP
----------
10% [Series A] [Series B] Senior Notes due 2008
No. $
METROMEDIA FIBER NETWORK, INC.
promises to pay to [Insert if a Global Note: Cede & Co.][Insert if a Definitive
Note:___________]
or registered assigns, the principal sum of
Dollars on November 15, 2008.
Interest Payment Dates: May 15 and November 15.
Record Dates: May 1 and November 1.
METROMEDIA FIBER NETWORK, INC.
By:
----------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
This is one of the Notes referred to in the within-mentioned Indenture:
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee
By: Dated:
-------------------------- --------------------
Name:
Title:
<PAGE>
(Back of Note)
10% [Series A] [Series B] Senior Notes due 2008
Capitalized terms used herein shall have the meanings assigned
to them in the Indenture referred to below unless otherwise indicated.
1. INTEREST. Metromedia Fiber Network, Inc., a Delaware
corporation (the "Company"), promises to pay interest on the principal amount of
this Note at 10% per annum from November 25, 1998 until maturity and shall pay
the Liquidated Damages payable in accordance with the provisions of the
following paragraph. The Company shall pay interest and Liquidated Damages
semi-annually on May 15 and November 15 of each year, or if any such day is not
a Business Day, on the next succeeding Business Day (each an "Interest Payment
Date"). Interest on the Notes shall accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
issuance; provided that if there is no existing Default or Event of Default
relating to the payment of interest, and if this Note is authenticated between a
Record Date referred to on the face hereof and the next succeeding Interest
Payment Date, interest shall accrue from such next succeeding Interest Payment
Date; provided, further, that the first Interest Payment Date shall be May 15,
1999. The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal and premium, if any,
from time to time on demand at a rate that is 1.0% per annum in excess of the
rate then in effect; 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 shall be computed
on the basis of a 360-day year of twelve 30-day months.
The Holder of this Note is entitled to the benefits of the
Registration Rights Agreement. If (a) the Company fails to file any of the
Registration Statements required by the Registration Rights Agreement on or
before the date specified for such filing, (b) any of such Registration
Statements is not declared effective by the SEC on or prior to the date
specified for such effectiveness, or (c) the Company fails to consummate the
Registered Exchange Offer within 210 Business Days of the Closing Date with
respect to the Exchange Offer Registration Statement, or (d) any Registration
Statement required by the Registration Rights Agreement is declared effective
but thereafter ceases to be effective or usable in connection with its intended
purpose (each such event referred to in clauses (a) through (d) above a
"Registration Default"), then the Company shall pay to each holder of Transfer
Restricted Notes (as defined in the Registration Rights Agreement) affected
thereby liquidated damages ("Liquidated Damages") which shall accrue and be
payable semi-annually on the Notes and the Exchange Notes (in addition to the
stated interest on the Notes and the Exchange Notes) from and including the date
such Registration Default occurs to, but excluding the date on which the
applicable Registration Statement is filed or is declared effective, the
Registered Exchange Offer is consummated, or the applicable Registration
Statement is again declared effective or made usable. During the time that
Liquidated Damages is accruing continuously, the rate of such Liquidated Damages
shall be 0.50% per annum during the first 90-day period and shall increase by
0.25% per annum for each subsequent 90-day period, but in no event shall such
rate exceed 1.50% per annum in the aggregate regardless of the number of
Registration Defaults. If, after the cure of all Registration Defaults then in
effect, there is a subsequent Registration Default, the rate of Liquidated
Damages for such subsequent Registration Default shall initially be 0.50%,
regardless of the Liquidated Damages rate in effect with respect to any prior
Registration Default at the time of the cure of such Registration Default.
2. METHOD OF PAYMENT. The Company shall 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 May 1 or November 1
next preceding the Interest Payment Date, even if such Notes are canceled after
such Record Date and on or before such Interest Payment Date, except as provided
in Section 2.12 of the Indenture with respect to defaulted interest. The Notes
shall be payable as to principal, premium and Liquidated Damages, if any, and
interest at the office or agency of the Company maintained for such purpose
within or outside of the City and State of New York, or, at the option of the
Company, payment of interest and Liquidated Damages may be made by check mailed
to the Holders at their addresses set forth in
<PAGE>
the register of Holders kept by the Registrar, and provided that payment by wire
transfer of immediately available funds shall be required with respect to
principal of and interest, premium and Liquidated Damages on, all Global Notes
and all other Notes the Holders of which shall have provided wire transfer
instructions to the Company or the Paying Agent. 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, IBJ Schroder Bank &
Trust Company, the Trustee under the Indenture, shall act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company or any of its Restricted Subsidiaries may act in any
such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture
dated as of November 25, 1998 ("Indenture") between the Company and the Trustee.
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 (15
U.S. Code Sections 77aaa-77bbbb) (the "TIA"). The Notes are subject to all such
terms, and Holders are referred to the Indenture and the TIA for a statement of
such terms. To the extent any provision of this Note conflicts with the express
provisions of the Indenture, the provisions of the Indenture shall govern and be
controlling. The Notes are obligations of the Company limited to $650.0 million
in aggregate principal amount.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in subparagraphs (b) and (c) below,
the Notes shall not be redeemable at the Company's option prior to November 15,
2003. Thereafter, the Notes shall be subject to redemption at any time 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 (subject to the right
of Holders of record on the relevant Record Date to receive interest due on the
relevant Interest Payment Date), if redeemed during the twelve-month period
beginning on November 15 of the years indicated below:
<TABLE>
<CAPTION>
Percentage of
Principal
Year Amount
--------------------
<S> <C>
2003.................. 105.000%
2004.................. 103.333%
2005.................. 101.667%
2006 and thereafter... 100.000%
</TABLE>
(b) Notwithstanding the foregoing, at any time prior to
November 15, 2001, the Company may, on any one or more occasions, redeem up to
35% of the aggregate principal amount of Notes originally issued pursuant to the
Indenture at a redemption price of 110.000% of the principal amount thereof,
plus accrued and unpaid interest (and Liquidated Damages, if any) thereon to the
redemption date (subject to the right of Holders of record on the relevant
Record Date to receive interest due on the relevant Interest Payment Date), with
the Net Cash Proceeds received from any Public Equity Offering made by the
Company resulting in gross proceeds to the Company of at least $100 million;
provided that at least 65% of the aggregate principal amount of Notes originally
issued pursuant to the Indenture remain outstanding immediately after the
occurrence of any such redemption. The Company may make any such redemption upon
not less than 30 nor more than 60 days' notice (but in no event more than 90
days after the closing of the related Public Equity Offering).
(c) Any redemption pursuant to this Section 5 shall be made
pursuant to the provisions of Section 3.01 through 3.06 of the Indenture.
<PAGE>
6. MANDATORY REDEMPTION.
The Company shall not be required to make mandatory redemption
or sinking fund payments with respect to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control, each Holder of
Notes will have the right to require the Company to purchase all or any part
(equal to $1,000 or an integral multiple thereof) of such Holder's Notes
pursuant to the offer described below (the "Change of Control Offer") at a
purchase price in cash equal to 101% of the aggregate principal amount thereof
(the "Change of Control Payment") plus accrued and unpaid interest (and
Liquidated Damages, if any) thereon to the date of purchase (subject to the
right of Holders of record on the relevant Record Date to receive interest due
on the relevant Interest Payment Date). Within 30 days following any Change of
Control, the Company will mail a notice to each Holder setting forth the
procedures governing the Change of Control Offer as required by the Indenture.
(b) The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, consummate any Asset Sale,
unless (i) the Company (or such Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the fair
market value (as determined in good faith by the Board of Directors (including
as to the value of all noncash consideration) and set forth in an Officer's
Certificate delivered to the Trustee) of the assets or Equity Interests issued
or sold or otherwise disposed of and (ii) at least 75% of the consideration
therefor is in the form of cash and/or Cash Equivalents or Telecommunications
Assets, and (iii) the Net Cash Proceeds received by the Company (or such
Restricted Subsidiary, as the case may be) from such Asset Sale are applied
within 360 days following the receipt of such Net Cash Proceeds, to the extent
the Company (or such Restricted Subsidiary, as the case may be) elects, (a) to
the permanent redemption or repurchase of outstanding Indebtedness (other than
Subordinated Indebtedness) that is secured Indebtedness (including that in the
case of a revolver or similar arrangement that makes credit available, such
commitment is so permanently reduced by such amount) or Indebtedness of the
Company or such Restricted Subsidiary that ranks equally with the Notes but has
a maturity date that is prior to the maturity date of the Notes and/or (b) to
reinvest such Net Cash Proceeds (or any portion thereof) in Telecommunications
Assets. Notwithstanding anything herein to the contrary, with respect to the
reinvestment of Net Cash Proceeds, only proceeds from an Asset Sale of assets,
or Equity Interests, of a Foreign Subsidiary may be used to retire Indebtedness
of a Foreign Subsidiary or reinvest in assets or Equity Interests of a Foreign
Subsidiary. The balance of such Net Cash Proceeds, after the application of such
Net Cash Proceeds as described in the immediately preceding clauses (a) and (b),
shall constitute "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds equals or
exceeds $15.0 million (taking into account income earned on such Excess
Proceeds), the Company will be required to make a pro rata offer to all Holders
of Notes and pari passu Indebtedness with comparable provisions requiring such
Indebtedness to be purchased with the proceeds of such Asset Sale (an "Asset
Sale Offer") to purchase the maximum principal amount or accreted value in the
case of Indebtedness issued with an original issue discount of Notes and pari
passu Indebtedness that may be purchased out of the Excess Proceeds, at a
purchase price in cash in an amount equal to 100% of the principal amount
thereof or the accreted value thereof, as applicable, plus accrued and unpaid
interest thereon to the date of purchase (subject to the right of Holders of
record on the relevant Record Date to receive interest due on the relevant
Interest Payment Date), in accordance with the procedures set forth in Article 3
of the Indenture and the agreements governing such pari passu Indebtedness. To
the extent that any Excess Proceeds remain after consummation of an Asset Sale
Offer, the Company may use such Excess Proceeds for any purpose not otherwise
prohibited by the Indenture. If the aggregate principal amount of Notes and pari
passu Indebtedness tendered into such Asset Sale Offer surrendered by Holders
thereof exceeds the amount of Excess Proceeds, the Trustee shall select the
Notes and pari passu Indebtedness to be purchased on a pro rata basis in
proportion to the respective principal amounts (or accreted values in the case
of Indebtedness issued with an original issue discount) of
<PAGE>
the Notes and such other Indebtedness. Upon completion, of such Asset Sale
Offer, the amount of Excess Proceeds shall be reset at zero for purposes of the
first sentence of this paragraph.
8. NOTICE OF REDEMPTION. Notice of redemption shall be mailed
at least 30 days but not more than 60 days before the redemption date to each
Holder whose Notes are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date interest shall cease to accrue on
Notes or portions thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Notes may be registered and Notes may be
exchanged as provided in 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 need not
exchange or register the transfer of any Note or portion of a Note selected for
redemption, except for the unredeemed portion of any Note being redeemed in
part. Also, the Company need not exchange or register the transfer of any Notes
for a period of 15 days before a selection of Notes to be redeemed or during the
period between a Record Date and the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note on
the Registrar's books may be treated as its owner for all purposes under the
Indenture.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain
exceptions, the Indenture and the Notes may be amended or supplemented with the
consent of the Holders of at least a majority in aggregate principal amount of
the then outstanding Notes voting as a single class, and any existing default or
compliance with any provision of the Indenture or the Note may be waived with
the consent of the Holders of a majority in aggregate principal amount of the
then outstanding Notes voting as a single class. Without the consent of any
Holder of a Note, the Indenture or the Notes may be amended or supplemented
among other things, to cure any ambiguity, omission, 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 obligations to Holders of
the Notes in case of a merger or consolidation or sale of all or substantially
all of the Company's assets in accordance with the terms of the Indenture, 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 under
the Indenture of any such Holder, to comply with the requirements of the SEC in
order to effect or maintain the qualification of the Indenture under the TIA, to
add to the covenants of the Company for the benefit of the Holders or to
surrender any right or power conferred by the Indenture upon the Company, to
provide for the issuance of the Unrestricted Notes under the Exchange Offer
contemplated by the Registration Rights Agreement, or to effect any change to
the transfer and exchange restrictions and security delivery procedures
contained in the Indenture in order to conform with changes in any applicable
law or Applicable Procedures.
12. DEFAULTS AND REMEDIES.
(a) Events of Default under the Indenture include: (i) the
failure to pay interest on, or Liquidated Damages, if any, with respect to the
Notes, when the same becomes due and payable if such default continues for a
period of 30 days, (ii) the failure to pay principal of any Notes when such
principal becomes due and payable, at maturity, upon redemption or otherwise;
(iii) failure by the Company or any Restricted Subsidiary to comply with
Sections 4.10 or 4.14 of the Indenture; (iv) failure by the Company or any
Restricted Subsidiary for 60 days after notice to comply with any of its other
agreements in the Indenture or this Note; (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 Restricted Subsidiaries (or the payment of which is Guaranteed by the
Company or any of its Restricted Subsidiaries) whether such Indebtedness or
Guarantee now exists, or is created after the Issue Date, which default 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
<PAGE>
or the maturity of which has been so accelerated, aggregates $15.0 million or
more; (vi) failure by the Company or any of its Restricted Subsidiaries to pay
final judgments not subject to appeal aggregating in excess of $15.0 million
(net of applicable insurance coverage which is acknowledged in writing by the
insurer), which judgments are not paid, vacated, discharged or stayed for a
period of 60 days; and (vii) certain events of bankruptcy or insolvency with
respect to the Company or any of the Company's Restricted Subsidiaries.
(b) If any Event of Default occurs and is continuing, the
Trustee or the Holders of at least 25% in aggregate principal amount of the then
outstanding Notes may declare all the Notes to be due and payable.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, all outstanding Notes shall become
due and payable 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 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. Except as provided in the Indenture, the 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 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 interest on, or principal of, the Notes. The
Company shall deliver to the Trustee annually a statement regarding compliance
with the Indenture, and the Company, upon becoming aware of any Default or Event
of Default, deliver to the Trustee a statement specifying such Default or Event
of Default.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its
individual or any other capacity, may make loans to, accept deposits from, and
perform services for the Company or its Affiliates, and may otherwise deal with
the Company or its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator or shareholder, of the Company, as such, shall not 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 issuance
of the Notes.
15. AUTHENTICATION. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
16. 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 entirety), 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).
17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES
AND RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders
of Notes under the Indenture, Holders of Notes shall have all the rights set
forth in the Registration Rights Agreement.
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by
the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP
numbers in notices of redemption as a convenience to Holders. No representation
is made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request
and without charge a copy of the Indenture and/or the Registration Rights
Agreement. Requests may be made to:
<PAGE>
Metromedia Fiber Network Services, Inc.
c/o Metromedia Fiber Network, Inc.
One North Lexington Avenue
White Plains, NY 10601
Attention: Chief Financial Officer
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
---------------------------------------------------------
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
Date: Your Signature:
-------------- -----------------------------
(Sign exactly as your name appears on the
face of this Note)
Tax Identification No:
----------------------
SIGNATURE GUARANTEE:
--------------------------------------------
Signatures must be guaranteed by an
"eligible guarantor institution" meeting the
requirements of the Registrar, which
requirements include membership or
participation in the Security Transfer Agent
Medallion Program ("STAMP") or such other
"signature guarantee program" as may be
determined by the Registrar in addition to,
or in substitution for, STAMP, all in
accordance with the Securities Exchange Act
of 1934, as amended.
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the
Company pursuant to Section 4.10 or 4.14 of the Indenture, check the box below:
/ / Section 4. 10 / / Section 4.14
If you want to elect to have only part of the Note purchased
by the Company pursuant to Section 4. 10 or Section 4.14 of the Indenture, state
the amount you elect to have purchased: $
-----------
Date: Your Signature:
-------------- -----------------------------
(Sign exactly as your name appears on the
face of this Note)
Tax Identification No:
----------------------
SIGNATURE GUARANTEE:
--------------------------------------------
Signatures must be guaranteed by an
"eligible guarantor institution" meeting the
requirements of the Registrar, which
requirements include membership or
participation in the Security Transfer Agent
Medallion Program ("STAMP") or such other
"signature guarantee program" as may be
determined by the Registrar in addition to,
or in substitution for, STAMP, all in
accordance with the Securities Exchange Act
of 1934, as amended.
<PAGE>
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE1/
The following exchanges of a part of this Global Note for an
interest in another Global Note or for a Definitive Note, or exchanges of a part
of another Global Note or Definitive Note for an interest in this Global Note,
have been made:
<TABLE>
<CAPTION>
Principal Amount
Amount of decrease Amount of increase of this Global Note Signature of
in Principal in Principal following such authorized officer
Amount of this Amount of this decrease of Trustee or
Date of Exchange Global Note Global Note (or increase) Note Custodian
- ---------------------- --------------------- --------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
</TABLE>
- --------
1 This should be included only if the Note is issued in global form.
<PAGE>
EXHIBIT A-2
(Face of Regulation S Temporary Global Note)
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
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. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("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 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 GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE
INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE
BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY
CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY
BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY
BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE
INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR
CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE
MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF
THE COMPANY.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, PRIOR TO THE
EXPIRATION OF A DISTRIBUTION COMPLIANCE PERIOD (DEFINED AS 40 DAYS AFTER THE
ISSUE DATE WITH RESPECT TO THE NOTES), MAY NOT BE: OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT (A)(1) IN AN OFFSHORE TRANSACTION IN ACCORDANCE
WITH RULE 903 OR RULE 904 OF REGULATION S OR (2) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A UNDER THE SECURITIES ACT ("RULE 144A") IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144, AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES
LAWS OF THE STATES OF THE UNITED STATES.
THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL
NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED
NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER
NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE
ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON.
<PAGE>
CUSIP
----------
10% Series A Senior Notes due 2008
No. $
METROMEDIA FIBER NETWORK, INC.
promises to pay to Cede & Co.
or registered assigns, the principal sum of
Dollars on November 15, 2008.
Interest Payment Dates: May 15 and November 15.
Record Dates: May 1 and November 1.
METROMEDIA FIBER NETWORK, INC.
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
This is one of the
Notes referred to in the
within-mentioned Indenture:
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee
By: Dated:
------------------------------ ----------------
Name:
Title:
<PAGE>
(Back of Regulation S Temporary Global Note)
10% Series A Senior Notes due 2008
Capitalized terms used herein shall have the meanings assigned
to them in the Indenture referred to below unless otherwise indicated.
1. INTEREST. Metromedia Fiber Network, Inc., a Delaware
corporation (the "Company"), promises to pay interest on the principal amount of
this Note at 10% per annum from November 25, 1998 until maturity and shall pay
the Liquidated Damages payable in accordance with the provisions of the
following paragraph. The Company shall pay interest and Liquidated Damages
semi-annually on May 15 and November 15 of each year, or if any such day is not
a Business Day, on the next succeeding Business Day (each an "Interest Payment
Date"). Interest on the Notes shall accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
Issuance; provided that if there is no existing Default or Event of Default
relating to the payment of interest, and if this Note is authenticated between a
Record Date referred to on the face hereof and the next succeeding Interest
Payment Date, interest shall accrue from such next succeeding Interest Payment
Date; provided, further, that the first Interest Payment Date shall be May 15,
1999. The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal and premium, if any,
from time to time on demand at a rate that is 1.0% per annum in excess of the
rate then in effect; 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 shall be computed
on the basis of a 360-day year of twelve 30-day months.
The Holder of this Note is entitled to the benefits of the
Registration Rights Agreement. If (a) the Company fails to file any of the
Registration Statements required by the Registration Rights Agreement on or
before the date specified for such filing, (b) any of such Registration
Statements is not declared effective by the SEC on or prior to the date
specified for such effectiveness, or (c) the Company fails to consummate the
Registered Exchange Offer within 210 Business Days of the Closing Date with
respect to the Exchange Offer Registration Statement, or (d) any Registration
Statement required by the Registration Rights Agreement is declared effective
but thereafter ceases to be effective or usable in connection with its intended
purpose (each such event referred to in clauses (a) through (d) above a
"Registration Default"), then the Company shall pay to each holder of Transfer
Restricted Notes (as defined in the Registration Rights Agreement) affected
thereby liquidated damages ("Liquidated Damages") which shall accrue and be
payable semi-annually on the Notes and the Exchange Notes (in addition to the
stated interest on the Notes and the Exchange Notes) from and including the date
such Registration Default occurs to, but excluding the date on which the
applicable Registration Statement is filed or is declared effective, the
Registered Exchange Offer is consummated, or the applicable Registration
Statement is again declared effective or made usable. During the time that
Liquidated Damages is accruing continuously, the rate of such Liquidated Damages
shall be 0.50% per annum during the first 90-day period and shall increase by
0.25% per annum for each subsequent 90-day period, but in no event shall such
rate exceed 1.50% per annum in the aggregate regardless of the number of
Registration Defaults. If, after the cure of all Registration Defaults then in
effect, there is a subsequent Registration Default, the rate of Liquidated
Damages for such subsequent Registration Default shall initially be 0.50%,
regardless of the Liquidated Damages rate in effect with respect to any prior
Registration Default at the time of the cure of such Registration Default.
Until this Regulation S Temporary Global Note is exchanged for
one or more Regulation S Permanent Global Notes, the Holder hereof shall not be
entitled to receive payments of interest hereon; until so exchanged in full,
this Regulation S Temporary Global Note shall in all other respects be entitled
to the same benefits as other Notes under the Indenture.
2. METHOD OF PAYMENT. The Company shall pay interest on the
Notes (except defaulted interest) and Liquidated Damages to the Persons who are
registered Holders of Notes at the
<PAGE>
close of business on the May 1 or November 1 next preceding the Interest Payment
Date, even if such Notes are canceled after such Record Date and on or before
such Interest Payment Date, except as provided in Section 2.12 of the Indenture
with respect to defaulted interest. The Notes shall be payable as to principal,
premium and Liquidated Damages, if any, and interest at the office or agency of
the Company maintained for such purpose within or outside of the City and State
of New York, or, at the option of the Company, payment of interest and
Liquidated Damages may be made by check mailed to the Holders at their addresses
set forth in the register of Holders kept by the Registrar, and provided that
payment by wire transfer of immediately available funds shall be required with
respect to principal of and interest, premium and Liquidated Damages on, all
Global Notes and all other Notes the Holders of which shall have provided wire
transfer instructions to the Company or the Paying Agent. 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, IBJ Schroder Bank &
Trust Company, the Trustee under the Indenture, shall act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company or any of its Restricted Subsidiaries may act in any
such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture
dated as of November 25, 1998 ("Indenture") between the Company and the Trustee.
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 (15
U.S. Code Sections 77aaa-77bbbb) (the "TIA"). The Notes are subject to all such
terms, and Holders are referred to the Indenture and the TIA for a statement of
such terms. To the extent any provision of this Note conflicts with the express
provisions of the Indenture, the provisions of the Indenture shall govern and be
controlling. The Notes are obligations of the Company limited to $650.0 million
in aggregate principal amount.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in subparagraphs (b) and (c) below,
the Notes shall not be redeemable at the Company's option prior to November 15,
2003. Thereafter, the Notes shall be subject to redemption at any time 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 (subject to the right
of Holders of record on the relevant Record Date to receive interest due on the
relevant Interest Payment Date), if redeemed during the twelve-month period
beginning on November 15 of the years indicated below:
<TABLE>
<CAPTION>
Percentage of
Principal
Year Amount
---- --------------------
<S> <C>
2003......................... 105.000%
2004......................... 103.333%
2005......................... 101.667%
2006 and thereafter.......... 100.000%
</TABLE>
(b) Notwithstanding the foregoing, at any time prior to
November 15, 2001, the Company may, on any one or more occasions, redeem up to
35% of the aggregate principal amount of Notes originally issued pursuant to the
Indenture at a redemption price of 110.000% of the principal amount thereof,
plus accrued and unpaid interest (and Liquidated Damages, if any) thereon to the
redemption date (subject to the right of Holders of record on the relevant
Record Date to receive interest due on the relevant Interest Payment Date), with
the Net Cash Proceeds received from any Public Equity Offering made by the
Company resulting in gross proceeds to the Company of at least $100 million;
<PAGE>
provided that at least 65% of the aggregate principal amount of Notes originally
issued pursuant to the Indenture remain outstanding immediately after the
occurrence of any such redemption. The Company may make any such redemption upon
not less than 30 nor more than 60 days' notice (but in no event more than 90
days after the closing of the related Public Equity Offering).
(c) Any redemption pursuant to this Section 5 shall be made
pursuant to the provisions of Section 3.01 through 3.06 of the Indenture.
6. MANDATORY REDEMPTION.
The Company shall not be required to make mandatory redemption
or sinking fund payments with respect to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control, each Holder of
Notes will have the right to require the Company to purchase all or any part
(equal to $1,000 or an integral multiple thereof) of such Holder's Notes
pursuant to the offer described below (the "Change of Control Offer") at a
purchase price in cash equal to 101% of the aggregate principal amount thereof
(the "Change of Control Payment") plus accrued and unpaid interest (and
Liquidated Damages, if any) thereon to the date of purchase (subject to the
right of Holders of record on the relevant Record Date to receive interest due
on the relevant Interest Payment Date). Within 30 days following any Change of
Control, the Company will mail a notice to each Holder setting forth the
procedures governing the Change of Control Offer as required by the Indenture.
(b) The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, consummate any Asset Sale,
unless (i) the Company (or such Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the fair
market value (as determined in good faith by the Board of Directors (including
as to the value of all noncash consideration) and set forth in an Officer's
Certificate delivered to the Trustee) of the assets or Equity Interests issued
or sold or otherwise disposed of and (ii) at least 75% of the consideration
therefor is in the form of cash and/or Cash Equivalents or Telecommunications
Assets, and (iii) the Net Cash Proceeds received by the Company (or such
Restricted Subsidiary, as the case may be) from such Asset Sale are applied
within 360 days following the receipt of such Net Cash Proceeds, to the extent
the Company (or such Restricted Subsidiary, as the case may be) elects, (a) to
the permanent redemption or repurchase of outstanding Indebtedness (other than
Subordinated Indebtedness) that is secured Indebtedness (including that in the
case of a revolver or similar arrangement that makes credit available, such
commitment is so permanently reduced by such amount) or Indebtedness of the
Company or such Restricted Subsidiary that ranks equally with the Notes but has
a maturity date that is prior to the maturity date of the Notes and/or (b) to
reinvest such Net Cash Proceeds (or any portion thereof) in Telecommunications
Assets. Notwithstanding anything herein to the contrary, with respect to the
reinvestment of Net Cash Proceeds, only proceeds from an Asset Sale of assets,
or Equity Interests, of a Foreign Subsidiary may be used to retire Indebtedness
of a Foreign Subsidiary or reinvest in assets or Equity Interests of a Foreign
Subsidiary. The balance of such Net Cash Proceeds, after the application of such
Net Cash Proceeds as described in the immediately preceding clauses (a) and (b),
shall constitute "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds equals or
exceeds $15.0 million (taking into account income earned on such Excess
Proceeds), the Company will be required to make a pro rata offer to all Holders
of Notes and pari passu Indebtedness with comparable provisions requiring such
Indebtedness to be purchased with the proceeds of such Asset Sale (an "Asset
Sale Offer") to purchase the maximum principal amount or accreted value in the
case of Indebtedness issued with an original issue discount of Notes and pari
passu Indebtedness that may be purchased out of the Excess Proceeds, at a
purchase price in cash in an amount equal to 100% of the principal amount
thereof or the accreted value thereof, as applicable, plus accrued and unpaid
interest thereon to the date of purchase
<PAGE>
(subject to the right of Holders of record on the relevant Record Date to
receive interest due on the relevant Interest Payment Date), in accordance with
the procedures set forth in Article 3 of the Indenture and the agreements
governing such pari passu Indebtedness. To the extent that any Excess Proceeds
remain after consummation of an Asset Sale Offer, the Company may use such
Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If
the aggregate principal amount of Notes and pari passu Indebtedness tendered
into such Asset Sale Offer surrendered by Holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes and pari passu Indebtedness
to be purchased on a pro rata basis in proportion to the respective principal
amounts (or accreted values in the case of Indebtedness issued with an original
issue discount) of the Notes and such other Indebtedness. Upon completion, of
such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero for
purposes of the first sentence of this paragraph.
8. NOTICE OF REDEMPTION. Notice of redemption shall be mailed
at least 30 days but not more than 60 days before the redemption date to each
Holder whose Notes are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date interest shall cease to accrue on
Notes or portions thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Notes may be registered and Notes may be
exchanged as provided in 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 need not
exchange or register the transfer of any Note or portion of a Note selected for
redemption, except for the unredeemed portion of any Note being redeemed in
part. Also, the Company need not exchange or register the transfer of any Notes
for a period of 15 days before a selection of Notes to be redeemed or during the
period between a Record Date and the corresponding Interest Payment Date.
This Regulation S Temporary Global Note is exchangeable in
whole or in part for one or more Global Notes only (i) on or after the
termination of the 40-day restricted period (as defined in Regulation S) and
(ii) upon presentation of certificates (accompanied by an Opinion of Counsel, if
applicable) required by Article 2 of the Indenture. Upon exchange of this
Regulation S Temporary Global Note for one or more Global Notes, the Trustee
shall cancel this Regulation S Temporary Global Note.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note on
the Registrar's books may be treated as its owner for all purposes under the
Indenture.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain
exceptions, the Indenture and the Notes may be amended or supplemented with the
consent of the Holders of at least a majority in aggregate principal amount of
the then outstanding Notes voting as a single class, and any existing default or
compliance with any provision of the Indenture or the Note may be waived with
the consent of the Holders of a majority in aggregate principal amount of the
then outstanding Notes voting as a single class. Without the consent of any
Holder of a Note, the Indenture or the Notes may be amended or supplemented to
cure any ambiguity, omission, 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 obligations to Holders of the Notes
in case of a merger or consolidation or sale of all or substantially all of the
Company's assets in accordance with the terms of the Indenture, 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 under the Indenture
of any such Holder, to comply with the requirements of the SEC in order to
effect or maintain the qualification of the Indenture under the TIA, to add to
the covenants of the Company for the benefit of the Holders or to surrender any
right or power herein conferred by the Indenture upon the Company, to provide
for the issuance of the Unrestricted Notes under the Exchange Offer contemplated
by the Registration Rights Agreement, or to effect any change to the
<PAGE>
transfer and exchange restrictions and security delivery procedures contained in
the Indenture in order to conform with changes in any applicable law or
Applicable Procedures.
12. DEFAULTS AND REMEDIES.
(a) Events of Default under the Indenture include: (i) the
failure to pay interest on, or Liquidated Damages, if any, with respect to the
Notes, when the same becomes due and payable if such default continues for a
period of 30 days, (ii) the failure to pay principal of any Notes when such
principal becomes due and payable, at maturity, upon redemption or otherwise;
(iii) failure by the Company or any Restricted Subsidiary to comply with
Sections 4.10 or 4.14 of the Indenture; (iv) failure by the Company or any
Restricted Subsidiary for 60 days after notice to comply with any of its other
agreements in the Indenture or this Note; (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 Restricted Subsidiaries (or the payment of which is Guaranteed by the
Company or any of its Restricted Subsidiaries) whether such Indebtedness or
Guarantee now exists, or is created after the Issue Date, which default 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 or the maturity of which has
been so accelerated, aggregates $15.0 million or more; (vi) failure by the
Company or any of its Restricted Subsidiaries to pay final judgments not subject
to appeal aggregating in excess of $15.0 million (net of applicable insurance
coverage which is acknowledged in writing by the insurer), which judgments are
not paid, vacated, discharged or stayed for a period of 60 days; and (vii)
certain events of bankruptcy or insolvency with respect to the Company or any of
the Company's Restricted Subsidiaries.
(b) If any Event of Default occurs and is continuing, the
Trustee or the Holders of at least 25% in aggregate principal amount of the then
outstanding Notes may declare all the Notes to be due and payable.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, all outstanding Notes shall become
due and payable 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 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. Except as provided in the Indenture, the 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 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 interest on, or principal of, the Notes. The
Company shall deliver to the Trustee annually a statement regarding compliance
with the Indenture, and the Company, upon becoming aware of any Default or Event
of Default, deliver to the Trustee a statement specifying such Default or Event
of Default.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its
individual or any other capacity, may make loans to, accept deposits from, and
perform services for the Company or its Affiliates, and may otherwise deal with
the Company or its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator or shareholder, of the Company, as such, shall not 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 issuance
of the Notes.
15. AUTHENTICATION. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
<PAGE>
16. 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 entirety), 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).
17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES
AND RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders
of Notes under the Indenture, Holders of Notes shall have all the rights set
forth in the Registration Rights Agreement.
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by
the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP
numbers in notices of redemption as a convenience to Holders. No representation
is made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request
and without charge a copy of the Indenture and/or the Registration Rights
Agreement. Requests may be made to:
Metromedia Fiber Network Services, Inc.
c/o Metromedia Fiber Network, Inc.
One North Lexington Avenue
White Plains, NY 10601
Attention: Chief Financial Officer
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
--------------------------------------------------------
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
Date: Your Signature:
----------------- -----------------------------
(Sign exactly as your name appears on the
face of this Note)
Tax Identification No:
----------------------
SIGNATURE GUARANTEE:
--------------------------------------------
Signatures must be guaranteed by an
"eligible guarantor institution" meeting the
requirements of the Registrar, which
requirements include membership or
participation in the Security Transfer Agent
Medallion Program ("STAMP") or such other
"signature guarantee program" as may be
determined by the Registrar in addition to,
or in substitution for, STAMP, all in
accordance with the Securities Exchange Act
of 1934, as amended.
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the
Company pursuant to Section 4.10 or 4.14 of the Indenture, check the box below:
/ / Section 4. 10 / / Section 4.14
If you want to elect to have only part of the Note purchased
by the Company pursuant to Section 4.10 or Section 4.14 of the Indenture, state
the amount you elect to have purchased: $
Date: Your Signature:
----------------- -----------------------------
(Sign exactly as your name appears on the
face of this Note)
Tax Identification No:
----------------------
SIGNATURE GUARANTEE:
--------------------------------------------
Signatures must be guaranteed by an
"eligible guarantor institution" meeting the
requirements of the Registrar, which
requirements include membership or
participation in the Security Transfer Agent
Medallion Program ("STAMP") or such other
"signature guarantee program" as may be
determined by the Registrar in addition to,
or in substitution for, STAMP, all in
accordance with the Securities Exchange Act
of 1934, as amended.
<PAGE>
SCHEDULE OF EXCHANGES OF REGULATION S TEMPORARY GLOBAL NOTE
The following exchanges of a part of this Regulation S
Temporary Global Note for an interest in another Global Note, or of other
Restricted Global Notes for an interest in this Regulation S Temporary Global
Note, have been made:
<TABLE>
<CAPTION>
Principal Amount
Amount of decrease Amount of increase of this Global Note Signature of
in Principal in Principal following such authorized officer
Amount of this Amount of this decrease of Trustee or
Date of Exchange Global Note Global Note (or increase) Note Custodian
- ---------------------- --------------------- --------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
Metromedia Fiber Network, Inc.
One North Lexington Avenue
White Plains, NY 10601
Attention: Chief Financial Officer
IBJ Schroder Bank & Trust Company
Attention:
Re: 10% Senior Notes due 2008
Reference is hereby made to the Indenture, dated as of
November 25, 1998 (the "Indenture"). between Metromedia Fiber Network, Inc., as
issuer (the "Company') and IBJ Schroder Bank & Trust Company, as trustee.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Indenture.
_______________, (the "Transferor") owns and proposes to
transfer the Series A Note[s] or interest in such Series A Note[s] specified
in Annex A hereto, in the principal amount of $____________ in such Series A
Note[s] or interests (the "Transfer"), to ____________ (the "Transferee"), as
further specified in Annex A hereto. In connection with the Transfer, the
Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
(1) / / Check if Transferee will take delivery of a beneficial interest in the
144A Global Note or a Definitive Note Pursuant to Rule 144A. The Transfer is
being effected pursuant to and in accordance with Rule 144A under the United
States Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, the Transferor hereby further certifies that the beneficial
interest or Definitive Note is being transferred to a Person that the Transferor
reasonably believed and believes is purchasing the beneficial interest or
Definitive Note for its own account, or for one or more accounts with respect to
which such Person exercises sole investment discretion, and such Person and each
such account is a "qualified institutional buyer" within the meaning of Rule
144A in a transaction meeting the requirements of Rule 144A and such Transfer is
in compliance with any applicable blue sky securities laws of any state of the
United States. Upon consummation of the proposed Transfer in accordance with the
terms of the Indenture, the transferred beneficial interest or Definitive Note
will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the 144A Global Note and/or the Definitive Note and
in the Indenture and the Securities Act.
(2) / / Check if Transferee will take delivery of a beneficial interest in the
Temporary Regulation S Global Note, the Regulation S Global Note or a Definitive
Note pursuant to Regulation S. The Transfer is being effected pursuant to and in
accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly,
the Transferor hereby further certifies that (i) the Transfer is not being made
to a person in the United States and (x) at the time the buy order was
originated, the Transferee was outside the United States or such Transferor and
any Person acting on its behalf reasonably believed and believes that the
Transferee was outside the United States or (y) the transaction was executed in,
on or through the facilities of a designated offshore securities market and
neither such Transferor nor any Person acting on its behalf knows that the
transaction was prearranged with a buyer in the United States, (ii) no directed
selling efforts have been made in contravention of the requirements of Rule
903(b) or Rule 904(b) of Regulation S under the Securities Act, (iii) the
transaction is not part of a plan or scheme to evade the registration
requirements of the Securities Act and (iv) if the proposed
<PAGE>
transfer is being made prior to the expiration of the Restricted Period, the
transfer is not being made to a U.S. Person or for the account or benefit of a
U.S. Person (other than an Initial Purchaser). Upon consummation of the proposed
transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Definitive Note will be subject to the restrictions on
Transfer enumerated in the Private Placement Legend printed on the Regulation S
Global Note, the Temporary Regulation S Global Note and/or the Definitive Note
and in the Indenture and the Securities Act.
(3) / / Check and complete if Transferee will take delivery of a beneficial
interest in a Definitive Note pursuant to any provision of the Securities Act
other than Rule 144A or Regulation S. The Transfer is being effected in
compliance with the transfer restrictions applicable to beneficial interests in
Restricted Global Notes and Restricted Definitive Notes and pursuant to and in
accordance with the Securities Act and any applicable blue sky securities laws
of any state of the United States, and accordingly the Transferor hereby further
certifies that (check one):
(a) / / such Transfer is being effected pursuant to and in
accordance with Rule 144 under the Securities Act;
or
(b) / / such Transfer is being effected to the Company or a
subsidiary thereof;
or
(c) / / such Transfer is being effected pursuant to an
effective registration statement under the Securities Act and in compliance with
the prospectus delivery requirements of the Securities Act.
(4) / / Check if Transferee will take delivery of a beneficial interest in an
Unrestricted Global Note or of an Unrestricted Definitive Note.
(a) / / Check if Transfer is pursuant to Rule 144. (i) The
Transfer is being effected pursuant to and in accordance with Rule 144 under the
Securities Act and in compliance with the transfer restrictions contained in the
Indenture and any applicable blue sky securities laws of any state of the United
States and (ii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act. Upon consummation of the proposed Transfer in accordance
with the terms of the Indenture, the transferred beneficial interest or
Definitive Note will no longer be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes, on Restricted Definitive Notes and in the Indenture.
(b) / / Check if Transfer is Pursuant to Regulation S. (i) The
Transfer is being effected pursuant to and in accordance with Rule 903 or Rule
904 under the Securities Act and in compliance with the transfer restrictions
contained in the Indenture and any applicable blue sky securities laws of any
state of the United States and (ii) the restrictions on transfer contained in
the Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act. Upon consummation of the proposed
Transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Definitive Note will no longer be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the Restricted Global Notes, on Restricted Definitive Notes and in the
Indenture.
<PAGE>
(c) / / Check if Transfer is Pursuant to Other Exemption. (i)
The Transfer is being effected pursuant to and in compliance with an exemption
from the registration requirements of the Securities Act other than Rule 144,
Rule 903 or Rule 904 and in compliance with the transfer restrictions contained
in the Indenture and any applicable blue sky securities laws of any State of the
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Note will not be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes or Restricted Definitive Notes and in the Indenture.
This certificate and the statements contained herein are made
for your benefit and the benefit of the Company.
--------------------------------
[Insert Name of Transferor]
By:
-----------------------------
Name:
Title:
Dated:
---------------------
<PAGE>
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) / / a beneficial interest in the:
(i) / / 144A Global Note (CUSIP ___), or
(ii) / / Regulation S Global Note (CUSIP ___); or
(b) / / a Restricted Definitive Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) / / a beneficial interest in the:
(i) / / 144A Global Note (CUSIP ___), or
(ii) / / Regulation S Global Note (CUSIP ___); or
(iii) / / Unrestricted Global Note (CUSIP ___); or
(b) / / a Restricted Definitive Note; or
(c) / / an Unrestricted Definitive Note,
in accordance with the terms of the Indenture.
<PAGE>
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
Metromedia Fiber Network, Inc.
One North Lexington Avenue
White Plains, NY 10601
Attention: Chief Financial Officer
IBJ Schroder Bank & Trust Company
Attention:
Re: 10% Senior Notes due 2008
(CUSIP __________)
Reference is hereby made to the Indenture, dated as of
November 25, 1998 (the "Indenture"). between Metromedia Fiber Network, Inc., as
issuer (the "Company') and IBJ Schroder Bank & Trust Company, as trustee.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Indenture.
________________, (the "Owner") owns and proposes to
exchange the Note[s] or interest in such Note(s) specified herein, in the
principal amount of $___________ in such Note[s] or interests (the
"Exchange"). In connection with the Exchange, the Owner hereby certifies that:
1. Exchange of Restricted Definitive Notes or Beneficial Interests in a
Restricted Global Note for Unrestricted Definitive Notes or Beneficial
Interests in an Unrestricted Global Note
(a) / / Check if Exchange is from beneficial interest in a
Restricted Global Note to beneficial interest in an Unrestricted Global Note. In
connection with the Exchange of the Owner's beneficial interest in a Restricted
Global Note for a beneficial interest in an Unrestricted Global Note in an equal
principal amount, the Owner hereby certifies (i) the beneficial interest is
being acquired for the Owner's own account without transfer, (ii) such Exchange
has been effected in compliance with the transfer restrictions applicable to the
Global Notes and pursuant to and in accordance with the United States Securities
Act of 1933, as amended (the "Securities Act"), (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
beneficial interest in an Unrestricted Global Note is being acquired in
compliance with any applicable blue sky securities laws of any state of the
United States.
(b) / / Check if Exchange is from beneficial interest in a
Restricted Global Note to Unrestricted Definitive Note. In connection with the
Exchange of the Owner's beneficial interest in a Restricted Global Note for an
Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive Note
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Global Notes and pursuant to and in accordance with
the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the Definitive Note is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(c) / / Check if Exchange is from Restricted Definitive Note
to beneficial interest in an Unrestricted Global Note. In connection with the
Owner's Exchange of a Restricted
<PAGE>
Definitive Note for a beneficial interest in an Unrestricted Global Note, the
Owner hereby certifies (i) the beneficial interest is being acquired for the
Owner's own account without transfer, (ii) such Exchange has been effected in
compliance with the transfer restrictions applicable to Restricted Definitive
Notes and pursuant to and in accordance with the Securities Act, (iii) the
restrictions on transfer contained in the Indenture and the Private Placement
Legend are not required in order to maintain compliance with the Securities Act
and (iv) the beneficial interest is being acquired in compliance with any
applicable blue sky securities laws of any state of the United States.
(d) / / Check if Exchange is from Restricted Definitive Note
to Unrestricted Definitive Note. In connection with the Owner's Exchange of a
Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby
certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's
own account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
Unrestricted Definitive Note is being acquired in compliance with any applicable
blue sky securities laws of any state of the United States.
2. Exchange of Restricted Definitive Notes or Beneficial
Interests in Restricted Global Notes for Restricted Definitive Notes or
Beneficial Interests in Restricted Global Notes
(a) / / Check if Exchange is from beneficial interest in a
Restricted Global Note to Restricted Definitive Note. In connection with the
Exchange of the Owner's beneficial interest in a Restricted Global Note for a
Restricted Definitive Note with an equal principal amount, the Owner hereby
certifies that the Restricted Definitive Note is being acquired for the Owner's
own account without transfer. Upon consummation of the proposed Exchange in
accordance with the terms of the Indenture, the Restricted Definitive Note
issued will continue to be subject to the restrictions on transfer enumerated in
the Private Placement Legend printed on the Restricted Definitive Note and in
the Indenture and the Securities Act.
(b) / / Check if Exchange is from Restricted Definitive
Note to beneficial interest in a Restricted Global Note. In connection with
the Exchange of the Owner's Restricted Definitive Note for a beneficial
interest in the [CHECK ONE] / / 144A Global Note, / / Regulation S Global
Note, with an equal principal amount, the Owner hereby certifies (i) the
beneficial interest is being acquired for the Owner's own account without
transfer and (ii) such Exchange has been effected in compliance with the
transfer restrictions applicable to the Restricted Global Notes and pursuant
to and in accordance with the Securities Act, and in compliance with any
applicable blue sky securities laws of any state of the United States. Upon
consummation of the proposed Exchange in accordance with the terms of the
Indenture, the beneficial interest issued will be subject to the restrictions
on transfer enumerated in the Private Placement Legend printed on the
relevant Restricted Global Note and in the Indenture and the Securities Act.
<PAGE>
This certificate and the statements contained herein are made
for your benefit and the benefit of the Company.
-------------------------------
[Insert Name of Owner]
By:
----------------------------
Name:
Title:
Dated:
---------------------
<PAGE>
Exhibit 4.3
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
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. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK,
NEW YORK) ("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 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 GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE
BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY
CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS
MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (II) THIS GLOBAL
NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF
THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR
CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL
NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN
CONSENT OF THE COMPANY.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A UNDER THE SECURITIES ACT ("RULE 144A") IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION MEETING THE
REQUIREMENTS OF RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES
ACT, OR (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) AND (B) IN ACCORDANCE WITH
ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES.
<PAGE>
CUSIP 591689AA2
10% Series A Senior Notes due 2008
No. $
METROMEDIA FIBER NETWORK, INC.
promises to pay to Cede & Co. or registered assigns, the principal sum of
Dollars on November 15, 2008.
Interest Payment Dates: May 15 and November 15.
Record Dates: May 1 and November 1.
METROMEDIA FIBER NETWORK, INC.
By:
Name:
Title:
By:
Name:
Title:
This is one of the Notes referred to in the within-mentioned Indenture:
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee
By: Dated:
Name:
Title:
<PAGE>
(Back of Note)
10% Series A Senior Notes due 2008
Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.
1. INTEREST. Metromedia Fiber Network, Inc., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Note at 10%
per annum from November 25, 1998 until maturity and shall pay the Liquidated
Damages payable in accordance with the provisions of the following paragraph.
The Company shall pay interest and Liquidated Damages semi-annually on May 15
and November 15 of each year, or if any such day is not a Business Day, on the
next succeeding Business Day (each an "Interest Payment Date"). Interest on the
Notes shall accrue from the most recent date to which interest has been paid or,
if no interest has been paid, from the date of issuance; provided that if there
is no existing Default or Event of Default relating to the payment of interest,
and if this Note is authenticated between a Record Date referred to on the face
hereof and the next succeeding Interest Payment Date, interest shall accrue from
such next succeeding Interest Payment Date; provided, further, that the first
Interest Payment Date shall be May 15, 1999. The Company shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law) on
overdue principal and premium, if any, from time to time on demand at a rate
that is 1.0% per annum in excess of the rate then in effect; 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 shall be computed on the basis of a
360-day year of twelve 30-day months.
The Holder of this Note is entitled to the benefits of the Registration
Rights Agreement. If (a) the Company fails to file any of the Registration
Statements required by the Registration Rights Agreement on or before the date
specified for such filing, (b) any of such Registration Statements is not
declared effective by the SEC on or prior to the date specified for such
effectiveness, or (c) the Company fails to consummate the Registered Exchange
Offer within 210 Business Days of the Closing Date with respect to the Exchange
Offer Registration Statement, or (d) any Registration Statement required by the
Registration Rights Agreement is declared effective but thereafter ceases to be
effective or usable in connection with its intended purpose (each such event
referred to in clauses (a) through (d) above a "Registration Default"), then the
Company shall pay to each holder of Transfer Restricted Notes (as defined in the
Registration Rights Agreement) affected thereby liquidated damages ("Liquidated
Damages") which shall accrue and be payable semi-annually on the Notes and the
Exchange Notes (in addition to the stated interest on the Notes and the Exchange
Notes) from and including the date such Registration Default occurs to, but
excluding the date on which the applicable Registration Statement is filed or is
declared effective, the Registered Exchange Offer is consummated, or the
applicable Registration Statement is again declared effective or made usable.
During the time that Liquidated Damages is accruing continuously, the rate of
such Liquidated Damages shall be 0.50% per annum during the first 90-day period
and shall increase by 0.25% per annum for each subsequent 90-day period, but in
no event shall such rate exceed 1.50% per annum in the aggregate regardless of
the number of Registration Defaults. If, after the cure of all Registration
Defaults then in effect, there is a subsequent Registration Default, the rate of
Liquidated Damages for such subsequent Registration Default shall initially be
0.50%, regardless of the Liquidated Damages rate in effect with respect to any
prior Registration Default at the time of the cure of such Registration Default.
2. METHOD OF PAYMENT. The Company shall 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 May 1 or November 1 next
preceding the Interest Payment Date, even if such Notes are canceled after such
Record Date and on or before such Interest Payment Date, except as provided in
Section 2.12 of the Indenture with respect to defaulted interest. The Notes
shall be payable as to principal, premium and Liquidated Damages, if any, and
interest at the office or agency of the Company maintained for such purpose
within or outside of the City and State of New York, or, at the option of the
Company, payment of
2
<PAGE>
interest and Liquidated Damages may be made by check mailed to the Holders at
their addresses set forth in the register of Holders kept by the Registrar, and
provided that payment by wire transfer of immediately available funds shall be
required with respect to principal of and interest, premium and Liquidated
Damages on, all Global Notes and all other Notes the Holders of which shall have
provided wire transfer instructions to the Company or the Paying Agent. 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, IBJ Schroder Bank & Trust
Company, the Trustee under the Indenture, shall act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company or any of its Restricted Subsidiaries may act in any
such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture dated as
of November 25, 1998 ("Indenture") between the Company and the Trustee. 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
(15 U.S. Code Sections 77aaa-77bbbb) (the "TIA"). The Notes are subject to
all such terms, and Holders are referred to the Indenture and the TIA for a
statement of such terms. To the extent any provision of this Note conflicts
with the express provisions of the Indenture, the provisions of the Indenture
shall govern and be controlling. The Notes are obligations of the Company
limited to $650.0 million in aggregate principal amount.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in subparagraphs (b) and (c) below, the Notes shall
not be redeemable at the Company's option prior to November 15, 2003.
Thereafter, the Notes shall be subject to redemption at any time 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 (subject to the right
of Holders of record on the relevant Record Date to receive interest due on the
relevant Interest Payment Date), if redeemed during the twelve-month period
beginning on November 15 of the years indicated below:
<TABLE>
<CAPTION>
Percentage of
Principal
Year Amount
- ----- --------------------
<S> <C>
2003....................................... 105.000%
2004....................................... 103.333%
2005....................................... 101.667%
2006 and thereafter........................ 100.000%
</TABLE>
(b) Notwithstanding the foregoing, at any time prior to November 15, 2001,
the Company may, on any one or more occasions, redeem up to 35% of the aggregate
principal amount of Notes originally issued pursuant to the Indenture at a
redemption price of 110.000% of the principal amount thereof, plus accrued and
unpaid interest (and Liquidated Damages, if any) thereon to the redemption date
(subject to the right of Holders of record on the relevant Record Date to
receive interest due on the relevant Interest Payment Date), with the Net Cash
Proceeds received from any Public Equity Offering made by the Company resulting
in gross proceeds to the Company of at least $100 million; provided that at
least 65% of the aggregate principal amount of Notes originally issued pursuant
to the Indenture remain outstanding immediately after the occurrence of any such
redemption. The Company may make any such redemption upon not less than 30 nor
more than 60 days' notice (but in no event more than 90 days after the closing
of the related Public Equity Offering).
3
<PAGE>
(c) Any redemption pursuant to this Section 5 shall be made pursuant to the
provisions of Section 3.01 through 3.06 of the Indenture.
6. MANDATORY REDEMPTION.
The Company shall not be required to make mandatory redemption or sinking
fund payments with respect to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control, each Holder of Notes will
have the right to require the Company to purchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at a purchase price in
cash equal to 101% of the aggregate principal amount thereof (the "Change of
Control Payment") plus accrued and unpaid interest (and Liquidated Damages, if
any) thereon to the date of purchase (subject to the right of Holders of record
on the relevant Record Date to receive interest due on the relevant Interest
Payment Date). Within 30 days following any Change of Control, the Company will
mail a notice to each Holder setting forth the procedures governing the Change
of Control Offer as required by the Indenture.
(b) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, consummate any Asset Sale, unless (i)
the Company (or such Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (as determined in good faith by the Board of Directors (including as to
the value of all noncash consideration) and set forth in an Officer's
Certificate delivered to the Trustee) of the assets or Equity Interests issued
or sold or otherwise disposed of and (ii) at least 75% of the consideration
therefor is in the form of cash and/or Cash Equivalents or Telecommunications
Assets, and (iii) the Net Cash Proceeds received by the Company (or such
Restricted Subsidiary, as the case may be) from such Asset Sale are applied
within 360 days following the receipt of such Net Cash Proceeds, to the extent
the Company (or such Restricted Subsidiary, as the case may be) elects, (a) to
the permanent redemption or repurchase of outstanding Indebtedness (other than
Subordinated Indebtedness) that is secured Indebtedness (including that in the
case of a revolver or similar arrangement that makes credit available, such
commitment is so permanently reduced by such amount) or Indebtedness of the
Company or such Restricted Subsidiary that ranks equally with the Notes but has
a maturity date that is prior to the maturity date of the Notes and/or (b) to
reinvest such Net Cash Proceeds (or any portion thereof) in Telecommunications
Assets. Notwithstanding anything herein to the contrary, with respect to the
reinvestment of Net Cash Proceeds, only proceeds from an Asset Sale of assets,
or Equity Interests, of a Foreign Subsidiary may be used to retire Indebtedness
of a Foreign Subsidiary or reinvest in assets or Equity Interests of a Foreign
Subsidiary. The balance of such Net Cash Proceeds, after the application of such
Net Cash Proceeds as described in the immediately preceding clauses (a) and (b),
shall constitute "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds equals or exceeds $15.0
million (taking into account income earned on such Excess Proceeds), the Company
will be required to make a pro rata offer to all Holders of Notes and pari passu
Indebtedness with comparable provisions requiring such Indebtedness to be
purchased with the proceeds of such Asset Sale (an "Asset Sale Offer") to
purchase the maximum principal amount or accreted value in the case of
Indebtedness issued with an original issue discount of Notes and pari passu
Indebtedness that may be purchased out of the Excess Proceeds, at a purchase
price in cash in an amount equal to 100% of the principal amount thereof or the
accreted value thereof, as applicable, plus accrued and unpaid interest thereon
to the date of purchase (subject to the right of Holders of record on the
relevant Record Date to receive interest due on the relevant Interest Payment
Date), in accordance with the procedures set forth in Article 3 of the Indenture
and the agreements governing such pari passu Indebtedness. To the extent that
any Excess Proceeds remain after consummation of an Asset Sale Offer, the
Company may use such Excess Proceeds for any purpose not otherwise prohibited by
the Indenture. If the aggregate principal amount of Notes and pari passu
Indebtedness tendered into such Asset Sale Offer surrendered by Holders thereof
exceeds the amount of Excess Proceeds, the Trustee shall select
4
<PAGE>
the Notes and pari passu Indebtedness to be purchased on a pro rata basis in
proportion to the respective principal amounts (or accreted values in the case
of Indebtedness issued with an original issue discount) of the Notes and such
other Indebtedness. Upon completion, of such Asset Sale Offer, the amount of
Excess Proceeds shall be reset at zero for purposes of the first sentence of
this paragraph.
8. NOTICE OF REDEMPTION. Notice of redemption shall be mailed at least 30
days but not more than 60 days before the redemption date to each Holder whose
Notes are to be redeemed at its registered address. Notes in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000, unless all of the Notes held by a Holder are to be redeemed. On and
after the redemption date interest shall cease to accrue on Notes or portions
thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000. The
transfer of Notes may be registered and Notes may be exchanged as provided in
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 need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, the Company
need not exchange or register the transfer of any Notes for a period of 15
Business Days before a selection of Notes to be redeemed or during the period
between a Record Date and the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note on the
Registrar's books may be treated as its owner for all purposes under the
Indenture.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the
Indenture and the Notes may be amended or supplemented with the consent of the
Holders of at least a majority in aggregate principal amount of the then
outstanding Notes voting as a single class, and any existing default or
compliance with any provision of the Indenture or the Note may be waived with
the consent of the Holders of a majority in aggregate principal amount of the
then outstanding Notes voting as a single class. Without the consent of any
Holder of a Note, the Indenture or the Notes may be amended or supplemented
among other things, to cure any ambiguity, omission, 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 obligations to Holders of
the Notes in case of a merger or consolidation or sale of all or substantially
all of the Company's assets in accordance with the terms of the Indenture, 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 under
the Indenture of any such Holder, to comply with the requirements of the SEC in
order to effect or maintain the qualification of the Indenture under the TIA, to
add to the covenants of the Company for the benefit of the Holders or to
surrender any right or power conferred by the Indenture upon the Company, to
provide for the issuance of the Unrestricted Notes under the Exchange Offer
contemplated by the Registration Rights Agreement, or to effect any change to
the transfer and exchange restrictions and security delivery procedures
contained in the Indenture in order to conform with changes in any applicable
law or Applicable Procedures.
12. DEFAULTS AND REMEDIES.
(a) Events of Default under the Indenture include: (i) the failure to pay
interest on, or Liquidated Damages, if any, with respect to the Notes, when the
same becomes due and payable if such default continues for a period of 30 days,
(ii) the failure to pay principal of any Notes when such principal becomes due
and payable, at maturity, upon redemption or otherwise; (iii) failure by the
Company or any Restricted Subsidiary to comply with Sections 4.10 or 4.14 of the
Indenture; (iv) failure by the Company or any Restricted Subsidiary for 60 days
after notice to comply with any of its other agreements in the Indenture or this
Note; (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 Restricted Subsidiaries (or the
payment of which is Guaranteed by the Company or any of its Restricted
Subsidiaries) whether such Indebtedness or Guarantee now exists, or is created
after the Issue Date, which
5
<PAGE>
default 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 or the
maturity of which has been so accelerated, aggregates $15.0 million or more;
(vi) failure by the Company or any of its Restricted Subsidiaries to pay final
judgments not subject to appeal aggregating in excess of $15.0 million (net of
applicable insurance coverage which is acknowledged in writing by the insurer),
which judgments are not paid, vacated, discharged or stayed for a period of 60
days; and (vii) certain events of bankruptcy or insolvency with respect to the
Company or any of the Company's Restricted Subsidiaries.
(b) If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of the then outstanding
Notes may declare all the Notes to be due and payable. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, all outstanding Notes shall become due and payable
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 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. Except as provided in the Indenture, the 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 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 interest on, or principal of, the Notes. The
Company shall deliver to the Trustee annually a statement regarding compliance
with the Indenture, and the Company, upon becoming aware of any Default or Event
of Default, deliver to the Trustee a statement specifying such Default or Event
of Default.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company or its Affiliates, and may otherwise deal with the Company or
its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator
or shareholder, of the Company, as such, shall not 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 issuance of the Notes.
15. AUTHENTICATION. This Note shall not be valid until authenticated by the
manual signature of the Trustee or an authenticating agent.
16. 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 entirety), 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).
17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND RESTRICTED
DEFINITIVE NOTES. In addition to the rights provided to Holders of Notes under
the Indenture, Holders of Notes shall have all the rights set forth in the
Registration Rights Agreement.
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
6
<PAGE>
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Metromedia Fiber Network Services, Inc.
c/o Metromedia Fiber Network, Inc.
One North Lexington Avenue
White Plains, NY 10601
Attention: Chief Financial Officer
7
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
(Insert assignee's soc. sec. or tax I.D. no.)
(Print or type assignee's name, address and zip code)
and irrevocably appoint
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
Date: Your Signature:
(Sign exactly as your name
appears on the face of this Note)
Tax Identification No:
SIGNATURE GUARANTEE:
Signatures must be
guaranteed by an "eligible
guarantor institution"
meeting the requirements of
the Registrar, which
requirements include
membership or participation
in the Security Transfer
Agent Medallion Program
("STAMP") or such other
"signature guarantee
program" as may be
determined by the Registrar
in addition to, or in
substitution for, STAMP,
all in accordance with the
Securities Exchange Act of
1934, as amended.
8
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant to
Section 4.10 or 4.14 of the Indenture, check the box below:
/ / Section 4. 10 / / Section 4.14
If you want to elect to have only part of the Note purchased by the Company
pursuant to Section 4. 10 or Section 4.14 of the Indenture, state the amount you
elect to have purchased: $
Date: Your Signature:
(Sign exactly as your name
appears on the face of this Note)
Tax Identification No:
SIGNATURE GUARANTEE:
Signatures must be
guaranteed by an "eligible
guarantor institution"
meeting the requirements of
the Registrar, which
requirements include
membership or participation
in the Security Transfer
Agent Medallion Program
("STAMP") or such other
"signature guarantee
program" as may be
determined by the Registrar
in addition to, or in
substitution for, STAMP,
all in accordance with the
Securities Exchange Act of
1934, as amended.
9
<PAGE>
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE
The following exchanges of a part of this Global Note for an interest in
another Global Note or for a Definitive Note, or exchanges of a part of another
Global Note or Definitive Note for an interest in this Global Note, have been
made:
<TABLE>
<CAPTION>
Principal Amount
Amount of decrease Amount of increase of this Global Note Signature of
in Principal in Principal following such authorized officer
Amount of this Amount of this decrease of Trustee or
Date of Exchange Global Note Global Note (or increase) Note Custodian
- ---------------------- --------------------- --------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
</TABLE>
10
<PAGE>
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
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. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK,
NEW YORK) ("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 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 GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 2.06 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE
EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE,
(III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT
TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO
A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, PRIOR TO THE EXPIRATION OF A
DISTRIBUTION COMPLIANCE PERIOD (DEFINED AS 40 DAYS AFTER THE ISSUE DATE WITH
RESPECT TO THE NOTES), MAY NOT BE: OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT (A)(1) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE
903 OR RULE 904 OF REGULATION S OR (2) TO A PERSON WHOM THE SELLER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A
UNDER THE SECURITIES ACT ("RULE 144A") IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144, AND (B) IN ACCORDANCE WITH ALL APPLICABLE
SECURITIES LAWS OF THE STATES OF THE UNITED STATES.
THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS
SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE
BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED
TO RECEIVE PAYMENT OF INTEREST HEREON.
<PAGE>
CUSIP U59198AA6
10% Series A Senior Notes due 2008
No. $
METROMEDIA FIBER NETWORK, INC.
promises to pay to Cede & Co. or registered assigns, the principal sum of
Dollars on November 15, 2008.
Interest Payment Dates: May 15 and November 15.
Record Dates: May 1 and November 1.
METROMEDIA FIBER NETWORK, INC.
By:
Name:
Title:
By:
Name:
Title:
This is one of the Notes referred to in the within-mentioned Indenture:
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee
By: Dated:
Name:
Title:
<PAGE>
(Back of Note)
10% Series A Senior Notes due 2008
Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.
1. INTEREST. Metromedia Fiber Network, Inc., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Note at 10%
per annum from November 25, 1998 until maturity and shall pay the Liquidated
Damages payable in accordance with the provisions of the following paragraph.
The Company shall pay interest and Liquidated Damages semi-annually on May 15
and November 15 of each year, or if any such day is not a Business Day, on the
next succeeding Business Day (each an "Interest Payment Date"). Interest on the
Notes shall accrue from the most recent date to which interest has been paid or,
if no interest has been paid, from the date of Issuance; provided that if there
is no existing Default or Event of Default relating to the payment of interest,
and if this Note is authenticated between a Record Date referred to on the face
hereof and the next succeeding Interest Payment Date, interest shall accrue from
such next succeeding Interest Payment Date; provided, further, that the first
Interest Payment Date shall be May 15, 1999. The Company shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law) on
overdue principal and premium, if any, from time to time on demand at a rate
that is 1.0% per annum in excess of the rate then in effect; 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 shall be computed on the basis of a
360-day year of twelve 30-day months.
The Holder of this Note is entitled to the benefits of the Registration
Rights Agreement. If (a) the Company fails to file any of the Registration
Statements required by the Registration Rights Agreement on or before the
date specified for such filing, (b) any of such Registration Statements is
not declared effective by the SEC on or prior to the date specified for such
effectiveness, or (c) the Company fails to consummate the Registered Exchange
Offer within 210 Business Days of the Closing Date with respect to the
Exchange Offer Registration Statement, or (d) any Registration Statement
required by the Registration Rights Agreement is declared effective but
thereafter ceases to be effective or usable in connection with its intended
purpose (each such event referred to in clauses (a) through (d) above a
"Registration Default"), then the Company shall pay to each holder of
Transfer Restricted Notes (as defined in the Registration Rights Agreement)
affected thereby liquidated damages ("Liquidated Damages") which shall accrue
and be payable semi-annually on the Notes and the Exchange Notes (in addition
to the stated interest on the Notes and the Exchange Notes) from and
including the date such Registration Default occurs to, but excluding the
date on which the applicable Registration Statement is filed or is declared
effective, the Registered Exchange Offer is consummated, or the applicable
Registration Statement is again declared effective or made usable. During the
time that Liquidated Damages is accruing continuously, the rate of such
Liquidated Damages shall be 0.50% per annum during the first 90-day period
and shall increase by 0.25% per annum for each subsequent 90-day period, but
in no event shall such rate exceed 1.50% per annum in the aggregate
regardless of the number of Registration Defaults. If, after the cure of all
Registration Defaults then in effect, there is a subsequent Registration
Default, the rate of Liquidated Damages for such subsequent Registration
Default shall initially be 0.50%, regardless of the Liquidated Damages rate
in effect with respect to any prior Registration Default at the time of the
cure of such Registration Default.
Until this Regulation S Temporary Global Note is exchanged for one or more
Regulation S Permanent Global Notes, the Holder hereof shall not be entitled to
receive payments of interest hereon; until so exchanged in full, this Regulation
S Temporary Global Note shall in all other respects be entitled to the same
benefits as other Notes under the Indenture.
2. METHOD OF PAYMENT. The Company shall pay interest on the Notes (except
defaulted interest) and Liquidated Damages to the Persons who are registered
Holders of Notes at the
<PAGE>
close of business on the May 1 or November 1 next preceding the Interest Payment
Date, even if such Notes are canceled after such Record Date and on or before
such Interest Payment Date, except as provided in Section 2.12 of the Indenture
with respect to defaulted interest. The Notes shall be payable as to principal,
premium and Liquidated Damages, if any, and interest at the office or agency of
the Company maintained for such purpose within or outside of the City and State
of New York, or, at the option of the Company, payment of interest and
Liquidated Damages may be made by check mailed to the Holders at their addresses
set forth in the register of Holders kept by the Registrar, and provided that
payment by wire transfer of immediately available funds shall be required with
respect to principal of and interest, premium and Liquidated Damages on, all
Global Notes and all other Notes the Holders of which shall have provided wire
transfer instructions to the Company or the Paying Agent. 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, IBJ Schroder Bank & Trust
Company, the Trustee under the Indenture, shall act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without
notice to any Holder. The Company or any of its Restricted Subsidiaries may
act in any such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture dated as
of November 25, 1998 ("Indenture") between the Company and the Trustee. 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
(15 U.S. Code Sections 77aaa-77bbbb) (the "TIA"). The Notes are subject to
all such terms, and Holders are referred to the Indenture and the TIA for a
statement of such terms. To the extent any provision of this Note conflicts
with the express provisions of the Indenture, the provisions of the Indenture
shall govern and be controlling. The Notes are obligations of the Company
limited to $650.0 million in aggregate principal amount.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in subparagraphs (b) and (c) below, the Notes shall
not be redeemable at the Company's option prior to November 15, 2003.
Thereafter, the Notes shall be subject to redemption at any time 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 (subject to the right
of Holders of record on the relevant Record Date to receive interest due on the
relevant Interest Payment Date), if redeemed during the twelve-month period
beginning on November 15 of the years indicated below:
<TABLE>
<CAPTION>
Percentage of
Principal
Year Amount
- ------ ----------------
<S> <C>
2003...................................................... 105.000%
2004...................................................... 103.333%
2005...................................................... 101.667%
2006 and thereafter....................................... 100.000%
</TABLE>
(b) Notwithstanding the foregoing, at any time prior to November 15, 2001,
the Company may, on any one or more occasions, redeem up to 35% of the aggregate
principal amount of Notes originally issued pursuant to the Indenture at a
redemption price of 110.000% of the principal amount thereof, plus accrued and
unpaid interest (and Liquidated Damages, if any) thereon to the redemption date
(subject to the right of Holders of record on the relevant Record Date to
receive interest due on the relevant Interest Payment Date), with the Net Cash
Proceeds received from any Public Equity Offering made by the Company resulting
in gross proceeds to the Company of at least $100 million;
<PAGE>
provided that at least 65% of the aggregate principal amount of Notes originally
issued pursuant to the Indenture remain outstanding immediately after the
occurrence of any such redemption. The Company may make any such redemption upon
not less than 30 nor more than 60 days' notice (but in no event more than 90
days after the closing of the related Public Equity Offering).
(c) Any redemption pursuant to this Section 5 shall be made pursuant to the
provisions of Section 3.01 through 3.06 of the Indenture.
6. MANDATORY REDEMPTION.
The Company shall not be required to make mandatory redemption or sinking
fund payments with respect to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control, each Holder of Notes will
have the right to require the Company to purchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at a purchase price in
cash equal to 101% of the aggregate principal amount thereof (the "Change of
Control Payment") plus accrued and unpaid interest (and Liquidated Damages, if
any) thereon to the date of purchase (subject to the right of Holders of record
on the relevant Record Date to receive interest due on the relevant Interest
Payment Date). Within 30 days following any Change of Control, the Company will
mail a notice to each Holder setting forth the procedures governing the Change
of Control Offer as required by the Indenture.
(b) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, consummate any Asset Sale, unless (i)
the Company (or such Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (as determined in good faith by the Board of Directors (including as to
the value of all noncash consideration) and set forth in an Officer's
Certificate delivered to the Trustee) of the assets or Equity Interests issued
or sold or otherwise disposed of and (ii) at least 75% of the consideration
therefor is in the form of cash and/or Cash Equivalents or Telecommunications
Assets, and (iii) the Net Cash Proceeds received by the Company (or such
Restricted Subsidiary, as the case may be) from such Asset Sale are applied
within 360 days following the receipt of such Net Cash Proceeds, to the extent
the Company (or such Restricted Subsidiary, as the case may be) elects, (a) to
the permanent redemption or repurchase of outstanding Indebtedness (other than
Subordinated Indebtedness) that is secured Indebtedness (including that in the
case of a revolver or similar arrangement that makes credit available, such
commitment is so permanently reduced by such amount) or Indebtedness of the
Company or such Restricted Subsidiary that ranks equally with the Notes but has
a maturity date that is prior to the maturity date of the Notes and/or (b) to
reinvest such Net Cash Proceeds (or any portion thereof) in Telecommunications
Assets. Notwithstanding anything herein to the contrary, with respect to the
reinvestment of Net Cash Proceeds, only proceeds from an Asset Sale of assets,
or Equity Interests, of a Foreign Subsidiary may be used to retire Indebtedness
of a Foreign Subsidiary or reinvest in assets or Equity Interests of a Foreign
Subsidiary. The balance of such Net Cash Proceeds, after the application of such
Net Cash Proceeds as described in the immediately preceding clauses (a) and (b),
shall constitute "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds equals or exceeds $15.0
million (taking into account income earned on such Excess Proceeds), the Company
will be required to make a pro rata offer to all Holders of Notes and pari passu
Indebtedness with comparable provisions requiring such Indebtedness to be
purchased with the proceeds of such Asset Sale (an "Asset Sale Offer") to
purchase the maximum principal amount or accreted value in the case of
Indebtedness issued with an original issue discount of Notes and pari passu
Indebtedness that may be purchased out of the Excess Proceeds, at a purchase
price in cash in an amount equal to 100% of the principal amount thereof or the
accreted value thereof, as applicable, plus accrued and unpaid interest thereon
to the date of purchase
<PAGE>
(subject to the right of Holders of record on the relevant Record Date to
receive interest due on the relevant Interest Payment Date), in accordance with
the procedures set forth in Article 3 of the Indenture and the agreements
governing such pari passu Indebtedness. To the extent that any Excess Proceeds
remain after consummation of an Asset Sale Offer, the Company may use such
Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If
the aggregate principal amount of Notes and pari passu Indebtedness tendered
into such Asset Sale Offer surrendered by Holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes and pari passu Indebtedness
to be purchased on a pro rata basis in proportion to the respective principal
amounts (or accreted values in the case of Indebtedness issued with an original
issue discount) of the Notes and such other Indebtedness. Upon completion, of
such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero for
purposes of the first sentence of this paragraph.
8. NOTICE OF REDEMPTION. Notice of redemption shall be mailed at least 30
days but not more than 60 days before the redemption date to each Holder whose
Notes are to be redeemed at its registered address. Notes in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000, unless all of the Notes held by a Holder are to be redeemed. On and
after the redemption date interest shall cease to accrue on Notes or portions
thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000. The
transfer of Notes may be registered and Notes may be exchanged as provided in
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 need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, the Company
need not exchange or register the transfer of any Notes for a period of 15
Business Days before a selection of Notes to be redeemed or during the period
between a Record Date and the corresponding Interest Payment Date.
This Regulation S Temporary Global Note is exchangeable in whole or in part
for one or more Global Notes only (i) on or after the termination of the 40-day
restricted period (as defined in Regulation S) and (ii) upon presentation of
certificates (accompanied by an Opinion of Counsel, if applicable) required by
Article 2 of the Indenture. Upon exchange of this Regulation S Temporary Global
Note for one or more Global Notes, the Trustee shall cancel this Regulation S
Temporary Global Note.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note on the
Registrar's books may be treated as its owner for all purposes under the
Indenture.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the
Indenture and the Notes may be amended or supplemented with the consent of the
Holders of at least a majority in aggregate principal amount of the then
outstanding Notes voting as a single class, and any existing default or
compliance with any provision of the Indenture or the Note may be waived with
the consent of the Holders of a majority in aggregate principal amount of the
then outstanding Notes voting as a single class. Without the consent of any
Holder of a Note, the Indenture or the Notes may be amended or supplemented to
cure any ambiguity, omission, 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 obligations to Holders of the Notes
in case of a merger or consolidation or sale of all or substantially all of the
Company's assets in accordance with the terms of the Indenture, 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 under the Indenture
of any such Holder, to comply with the requirements of the SEC in order to
effect or maintain the qualification of the Indenture under the TIA, to add to
the covenants of the Company for the benefit of the Holders or to surrender any
right or power herein conferred by the Indenture upon the Company, to provide
for the issuance of the Unrestricted Notes under
<PAGE>
the Exchange Offer contemplated by the Registration Rights Agreement, or to
effect any change to the transfer and exchange restrictions and security
delivery procedures contained in the Indenture in order to conform with changes
in any applicable law or Applicable Procedures.
12. DEFAULTS AND REMEDIES.
(a) Events of Default under the Indenture include: (i) the failure to
pay interest on, or Liquidated Damages, if any, with respect to the Notes,
when the same becomes due and payable if such default continues for a period
of 30 days, (ii) the failure to pay principal of any Notes when such
principal becomes due and payable, at maturity, upon redemption or otherwise;
(iii) failure by the Company or any Restricted Subsidiary to comply with
Sections 4.10 or 4.14 of the Indenture; (iv) failure by the Company or any
Restricted Subsidiary for 60 days after notice to comply with any of its
other agreements in the Indenture or this Note; (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 Restricted Subsidiaries (or the payment of which is
Guaranteed by the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or Guarantee now exists, or is created after the Issue Date,
which default 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 or the maturity of which has been so accelerated, aggregates
$15.0 million or more; (vi) failure by the Company or any of its Restricted
Subsidiaries to pay final judgments not subject to appeal aggregating in
excess of $15.0 million (net of applicable insurance coverage which is
acknowledged in writing by the insurer), which judgments are not paid,
vacated, discharged or stayed for a period of 60 days; and (vii) certain
events of bankruptcy or insolvency with respect to the Company or any of the
Company's Restricted Subsidiaries.
(b) If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of the then outstanding
Notes may declare all the Notes to be due and payable. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, all outstanding Notes shall become due and payable
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 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. Except as provided in the Indenture, the 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 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 interest on, or principal of, the Notes. The
Company shall deliver to the Trustee annually a statement regarding compliance
with the Indenture, and the Company, upon becoming aware of any Default or Event
of Default, deliver to the Trustee a statement specifying such Default or Event
of Default.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company or its Affiliates, and may otherwise deal with the Company or
its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator or shareholder, of the Company, as such, shall not 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
issuance of the Notes.
15. AUTHENTICATION. This Note shall not be valid until authenticated by the
manual signature of the Trustee or an authenticating agent.
<PAGE>
16. 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 entirety), 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).
17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND
RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of
Notes under the Indenture, Holders of Notes shall have all the rights set
forth in the Registration Rights Agreement.
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Metromedia Fiber Network Services, Inc.
c/o Metromedia Fiber Network, Inc.
One North Lexington Avenue
White Plains, NY 10601
Attention: Chief Financial Officer
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
(Insert assignee's soc. sec. or tax I.D. no.)
(Print or type assignee's name, address and zip code)
and irrevocably appoint
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
Date: Your Signature:
(Sign exactly as your name
appears on the face of this Note)
Tax Identification No:
SIGNATURE GUARANTEE:
Signatures must be
guaranteed by an "eligible
guarantor institution"
meeting the requirements
of the Registrar, which
requirements include
membership or participation
in the Security Transfer
Agent Medallion Program
("STAMP") or such other
"signature guarantee
program" as may be deter
mined by the Registrar in
addition to, or in
substitution for, STAMP,
all in accordance with the
Securities Exchange Act of
1934, as amended.
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant to
Section 4.10 or 4.14 of the Indenture, check the box below:
/ / Section 4.10 / / Section 4.14
If you want to elect to have only part of the Note purchased by the Company
pursuant to Section 4.10 or Section 4.14 of the Indenture, state the amount you
elect to have purchased: $
Date: Your Signature:
(Sign exactly as your name
appears on the face of this Note)
Tax Identification No:
SIGNATURE GUARANTEE:
Signatures must be guaranteed by an
"eligible guarantor institution" meeting the
requirements of the Registrar, which
requirements include membership
or participation in the Security Transfer Agent
Medallion Program ("STAMP") or such
other "signature guarantee program" as may
be determined by the Registrar in addition
to, or in substitution for, STAMP, all in
accordance with the Securities Exchange
Act of 1934, as amended.
<PAGE>
SCHEDULE OF EXCHANGES OF REGULATION S TEMPORARY GLOBAL
NOTE
The following exchanges of a part of this Regulation S Temporary Global
Note for an interest in another Global Note, or of other Restricted Global Notes
for an interest in this Regulation S Temporary Global Note, have been made:
<TABLE>
<CAPTION>
Principal Amount
Amount of decrease Amount of increase of this Global Note Signature of
in Principal in Principal following such authorized officer
Amount of this Amount of this decrease of Trustee or
Date of Exchange Global Note Global Note (or increase) Note Custodian
- ---------------------- --------------------- --------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
January 25, 1999
Metromedia Fiber Network, Inc.
1 North Lexington Avenue
White Plains, NY 10601
Registration Statement on Form S-4
of Metromedia Fiber Network, Inc.
----------------------------------
Ladies and Gentlemen:
In connection with the Registration Statement on Form S-4 (the
"Registration Statement") filed by Metromedia Fiber Network, Inc., a Delaware
corporation (the "Company"), with the Securities and Exchange Commission (the
"Commission") on the date of this letter, as provided by the Securities Act of
1933, as amended (the "Act"), and the rules and regulations under the Act, we
have been requested to render our opinion as to the legality of the securities
being registered under the Registration Statement. The Registration Statement
relates to the registration under the Act of the Company's $650,000,000
aggregate principal amount of
<PAGE>
Metromedia Fiber Network, Inc. 2
10% Series B Senior Notes due 2008 (the "Exchange Notes"). The Exchange
Notes are to be offered in exchange for the outstanding $650,000,000
aggregate principal amount of 10% Series A Senior Notes due 2008 (the
"Initial Notes") issued and sold by the Company on November 25, 1998 as part
of an offering exempt from registration under the Act. The Exchange Notes
will be issued by the Company under the Indenture (the "Indenture"), dated as
of November 25, 1998, between the Company and IBJ Whitehall Bank & Tust
Company (formerly IBJ Schroder Bank & Trust
Company), as trustee (the "Trustee"). Capitalized terms used in this letter
and not otherwise defined have the respective meanings given those terms in
the Registration Statement.
In connection with this opinion, we have examined originals, conformed
copies or photocopies, certified or otherwise identified to our satisfaction, of
the following documents (collectively, the "Documents"):
(i) the Registration Statement;
(ii) the Indenture included as Exhibit 4.2 to the Registration
Statement;
(iii) the form of the Exchange Notes included as Exhibit 4.4 to the
Registration Statement; and
(iv) The Registration Rights Agreement included as Exhibit 10.18 to
the Registration Statement.
In addition, we have examined: (i) those corporate records of the
Company as we have considered appropriate, including copies of its Amended and
Restated Certificate of Incorporation and Amended and Restated By-laws, as in
effect on the date of this letter (collectively, the "Charter Documents"), and
certified copies of resolutions of the executive committee of the board of
directors of the Company relating to the Exchange Notes; and (ii) those other
certificates, agreements and
<PAGE>
Metromedia Fiber Network, Inc. 3
documents as we deemed relevant and necessary as a basis for the opinions
expressed below.
In our examination of the documents referred to above, we have
assumed, without independent investigation, (i) the due organization and valid
existence of the Company under the General Corporation Law of the State of
Delaware, (ii) the enforceability of the documents reviewed by us against each
party to them other than the Company, (iii) the necessary power and authority of
the Company to execute, deliver and perform its obligations under each of the
Documents to which it is a party, (iv) the due authorization, execution and
delivery by the Company of each of the Documents to which it is a party,
(v) that the authorization, execution and delivery by the Company of each
Document to which it is a party and the consummation by the Company of the
transactions contemplated by them do not violate or result in a breach of or
default under the Company's Charter Documents, (vi) that the Exchange Notes will
be substantially issued as described in the Registration Statement and in the
form reviewed by us and that any information omitted from the form will be
properly added, (vii) the genuineness of all signatures, (viii) the authenticity
of all documents submitted to us as originals, (ix) the conformity to the
original documents of all documents submitted to us as certified, photostatic,
reproduced or conformed copies of validly existing agreements or other
documents, (x) the authenticity of the latter documents; (xi) that the
statements regarding matters of fact in the certificates, records, agreements,
instruments and documents that we examined are accurate and complete, and (xii)
the legal capacity of all individuals who have executed any of the documents
which we examined.
<PAGE>
Metromedia Fiber Network, Inc. 4
We have also assumed, without independent investigation, that (i) the
Indenture was duly authorized, executed and delivered by the Trustee, (ii) the
Indenture is a valid and binding obligation of the Trustee, (iii) the Exchange
Notes will be issued in accordance with the Indenture as described in the
Registration Statement and (iv) the Exchange Notes will be duly authenticated by
the Trustee in accordance with the Indenture.
In expressing the opinion set forth below, we have relied upon the
factual matters contained in the representations and warranties of the Company
made in the documents and upon certificates of public officials and officers of
the Company.
Based on the foregoing, and subject to the stated assumptions,
exceptions and qualifications, we are of the opinion that:
1. The Indenture represents a valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
enforceability may be subject to (a) bankruptcy, insolvency, fraudulent
conveyance or transfer, reorganization, moratorium or other similar laws
affecting creditors' rights generally and (b) general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law).
2. When issued, authenticated and delivered in accordance with the
terms of the Indenture, the Exchange Notes will be legal, valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as enforceability may be limited by (a) bankruptcy,
insolvency, fraudulent conveyance or transfer, reorganization, moratorium and
other similar laws affecting creditors' rights generally and (b) general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law).
<PAGE>
Metromedia Fiber Network, Inc. 5
Our opinions expressed above are limited to the laws of the State of
New York, the General Corporation Law of the State of Delaware and the federal
laws of the United States of America. Our opinions are rendered only with
respect to the laws, and the rules, regulations and orders under those laws,
that are currently in effect. Please be advised that no member of this firm is
admitted to practice in the State of Delaware.
We hereby consent to the use of our name in the Registration Statement
and in the prospectus in the Registration Statement as it appears in the caption
"Legal Matters" and to the use of this opinion as an exhibit to the Registration
Statement. In giving this consent, we do not thereby admit that we come within
the category of persons whose consent is required by the Act or by the rules and
regulations under the Act.
Very truly yours,
/s/ Paul, Weiss, Rifkind,
Wharton & Garrison
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
<PAGE>
Exhibit 8.1
[LETTERHEAD OF PAUL, WEISS, RIFKIND, WHARTON & GARRISON]
(212) 373-3000
January 25, 1999
Metromedia Fiber Network, Inc.
1 North Lexington Avenue
White Plains, NY 10601
Re: Metromedia Fiber Network, Inc.
$650,000,000 10% Series B
Senior Notes Due 2008
-----------------------------------
Dear Sir or Madam:
We have acted as special United States federal tax counsel for
Metromedia Fiber Network, Inc. (the "Company") in connection with the offer
to exchange $650,000,000 aggregate principal amount of the Company's 10%
Series B Senior Notes due 2008 (the "Exchange Notes"), which have been
registered under the United States Securities Act of 1933, as amended (the
"Securities Act"), for a like aggregate principal amount of outstanding 10%
Series A Senior Notes due 2008 (the "Exchange Offer").
We are giving this opinion in connection with the Registration
Statement on Form S-4, as amended (the "Registration Statement"), relating to
the registration by the Company of the Exchange Notes to be offered in the
Exchange Offer, filed by the Company with the Securities and Exchange Commission
(the "Commission") pursuant to the Securities Act and the rules and regulations
of the
<PAGE>
Metromedia Fiber Network, Inc. 2
Commission promulgated thereunder. Capitalized terms used but not defined
herein have the respective meanings ascribed to them in the Registration
Statement.
In rendering our opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of such agreements and
other documents as we have deemed relevant and necessary and we have made such
investigations of law as we have deemed appropriate as a basis for the opinion
expressed below. In our examination, we have assumed the authenticity of
original documents, the accuracy of copies and the genuineness of signatures.
We understand and assume that each such agreement represents the valid and
binding obligation of the respective parties thereto, enforceable in accordance
with its respective terms and the entire agreement between the parties with
respect to the subject matter thereof, (ii) the parties to each agreement have
complied, and will comply, with all of their respective covenants, agreements
and undertakings contained therein and (iii) the transactions provided for by
each agreement were and will be carried out in accordance with their terms.
Our opinion is based upon existing United States federal income and
estate tax laws, regulations, administrative pronouncements and judicial
decisions. All such authorities are subject to change, either prospectively or
retroactively, and any such change could affect our opinion.
The opinion set forth herein has no binding effect on the United
States Internal Revenue Service or the courts of the United States. No
assurance can be given that, if the matter were contested, a court would agree
with the opinion set forth herein.
We hereby confirm the opinion set forth under the caption "Certain
United States Federal Tax Considerations" in the Registration Statement. While
such description discusses the material anticipated United States federal income
tax consequences applicable to certain holders of Notes, it does not purport to
discuss all United States federal income tax considerations and our opinion is
limited to those United States federal income tax considerations specifically
discussed therein.
In giving the foregoing opinion, we express no opinion other than as
to the federal income tax laws of the United States of America.
We are furnishing this letter in our capacity as special United States
tax counsel to the Company. This letter is not to be used, circulated, quoted
or otherwise referred to for any other purpose, except as set forth below.
<PAGE>
Metromedia Fiber Network, Inc. 3
We hereby consent to the filing of this opinion as Exhibit 8.1 to the
Registration Statement and we further consent to the use of our name under the
caption "Certain United States Federal Tax Considerations" in the Registration
Statement. The issuance of such a consent does not concede that we are an
"expert" for purposes of the Securities Act.
Very truly yours,
/s/ Paul, Weiss, Rifkind, Wharton & Garrison
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
<PAGE>
Exhibit 10.17
METROMEDIA FIBER NETWORK, INC.
$650,000,000
10% Senior Notes Due 2008
Purchase Agreement
New York, New York
November 20, 1998
Salomon Smith Barney
Chase Securities Inc.
Deutsche Bank Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
As Representatives of the Initial Purchasers
c/o Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
Metromedia Fiber Network, Inc., a corporation organized under the laws
of Delaware (the "Company"), proposes to issue and sell to the several parties
named in Schedule I hereto (the "Initial Purchasers"), for whom you (the
"Representatives") are acting as representatives, $650,000,000 aggregate
principal amount of its 10% Senior Notes Due 2008 (the "Securities"). The
Securities are to be issued under an indenture (the "Indenture") to be entered
into between the Company and IBJ Schroder Bank & Trust Company, as trustee (the
"Trustee"). The Securities have the benefit of the Registration Rights Agreement
(the "Registration Rights Agreement") to be entered into among the Company and
the Initial Purchasers, pursuant to which the Company has agreed (i) to register
under the Act certain securities (the "Exchange Securities") which will be
offered in exchange (the "Exchange Offer") for the Securities subject to the
terms and conditions therein specified and (ii) under certain circumstances, to
file a shelf registration statement relating to the Securities pursuant to Rule
415 under the Act. Pursuant to the Indenture, and in accordance with the
provisions of the Security Agreement (the "Security Agreement") to be entered
into among the Company, the Trustee and IBJ Schroder Bank & Trust Company, as
securities intermediary (the "Securities Intermediary"), the Company has agreed,
to (i) purchase Pledged Securities (as defined in the Indenture) in an amount
that, together with the proceeds from the
<PAGE>
investment thereof, will be sufficient to provide for the payment of the first
three scheduled interest payments due on the Securities and (ii) place such
Pledged Securities in an account maintained by the Securities Intermediary for
the benefit of Holders of the Securities. To the extent there are no additional
parties listed on Schedule I other than you, the term Representatives as used
herein shall mean you as the Initial Purchasers, and the terms Representatives
and Initial Purchasers shall mean either the singular or plural as the context
requires. The use of the neuter in this Agreement shall include the feminine and
masculine wherever appropriate. Certain terms used herein are defined in Section
17 hereof.
The sale of the Securities to the Initial Purchasers will be made
without registration of the Securities under the Act in reliance upon exemptions
from the registration requirements of the Act.
In connection with the sale of the Securities, the Company has
prepared a preliminary offering memorandum, dated November 10, 1998 (as amended
or supplemented at the Execution Time, including any and all exhibits thereto
and any information incorporated by reference therein, the "Preliminary
Memorandum"), and a final offering memorandum, dated November 20, 1998 (as
amended or supplemented at the Execution Time, including any and all exhibits
thereto and any information incorporated by reference therein, the "Final
Memorandum"). Each of the Preliminary Memorandum and the Final Memorandum sets
forth certain information concerning the Company and the Securities. The Company
hereby confirms that it has authorized the use of the Preliminary Memorandum and
the Final Memorandum, and any amendment or supplement thereto, in connection
with the offer and sale of the Securities by the Initial Purchasers. Unless
stated to the contrary, any references herein to the terms "amend", "amendment"
or "supplement" with respect to the Final Memorandum shall be deemed to refer to
and include any information filed under the Exchange Act, subsequent to the
Execution Time which is incorporated by reference therein.
1. Representations and Warranties. The Company represents and warrants
to each Initial Purchaser as set forth below in this Section 1 on and as of the
Execution Time and the Closing Date or on and as of such other date as specified
herein.
(a) The Preliminary Memorandum, at the date thereof, did not contain
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. At the Execution Time
2
<PAGE>
and on the Closing Date, the Final Memorandum did not, and will not (and
any amendment or supplement thereto, at the date thereof, at the Closing
Date, will not), contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
Notwithstanding the foregoing, the Company makes no representation or
warranty as to the information contained in or omitted from the Preliminary
Memorandum or the Final Memorandum, or any amendment or supplement thereto,
in reliance upon and in conformity with information furnished in writing to
the Company by or on behalf of the Initial Purchasers through the
Representatives specifically for inclusion therein, it being understood and
agreed that the only such information is that described as such in Section
8(b) of this Agreement.
(b) Neither the Company, nor any of its Affiliates, nor any person
acting on its or their behalf has, directly or indirectly, made offers or
sales of any security, or solicited offers to buy any security, under
circumstances that would require the registration of the Securities under
the Act.
(c) Neither the Company, nor any of its Affiliates, nor any person
acting on its or their behalf has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D) in
connection with any offer or sale of the Securities in the United States.
(d) The Securities satisfy the eligibility requirements of Rule
144A(d)(3) under the Act.
(e) Neither the Company, nor any of its Affiliates, nor any person
acting on its or their behalf has engaged in any directed selling efforts
with respect to the Securities, and each of them has complied with the
offering restrictions requirement of Regulation S. Terms used in this
paragraph and defined in Regulation S have the meanings given to them by
Regulation S.
(f) The Company has been advised by the NASD's Private Offerings,
Resales and Trading through Automated Linkages ("PORTAL") market that the
Securities have been designated PORTAL-eligible securities in accordance
with the rules and regulations of the NASD.
(g) The Company is not, and after giving effect to the offering and
sale of the Securities and the application of the proceeds thereof as
described
3
<PAGE>
in the Final Memorandum will not be, an "investment company" required to be
registered under the Investment Company Act, without taking account of any
exemption arising out of the number of holders of the Company's securities.
(h) The Company is subject to and in full compliance with the
reporting requirements of Section 13 or Section 15(d) of the Exchange Act.
(i) The Company has not paid or agreed to pay to any person any
compensation for soliciting another to purchase any securities of the
Company (except as contemplated by this Agreement).
(j) The Company has not taken, directly or indirectly, any action
designed to cause or which has constituted or which might reasonably be
expected to cause or result, under the Exchange Act or otherwise, in the
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Securities.
(k) The information provided by the Company pursuant to Section 5(h)
hereof will not, at the date thereof, contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(l) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation or limited liability
company in good standing under the laws of the jurisdiction in which it is
chartered or organized with full corporate power and authority to own or
lease, as the case may be, and to operate its properties and conduct its
business as described in the Final Memorandum, and is duly qualified to do
business as a foreign corporation or limited liability company and is in
good standing under the laws of each jurisdiction which requires such
qualification, except where the failure to be so qualified would not have,
singly or in the aggregate, a material adverse effect on the condition
(financial or otherwise), prospects, earnings, business or properties of
the Company and its subsidiaries, taken as a whole, whether or not arising
from transactions in the ordinary course of business.
(m) All the outstanding shares of capital stock of each subsidiary
that is a corporation have been duly and validly authorized and issued and
are
4
<PAGE>
fully paid and nonassessable, and, except as otherwise set forth in the
Final Memorandum, all outstanding shares of capital stock of the
subsidiaries are owned by the Company either directly or through wholly
owned subsidiaries free and clear of any perfected security interest or, to
the knowledge of the Company, any other security interests, claims, liens
or encumbrances.
(n) The Company's authorized capitalization is as set forth in the
Final Memorandum under the heading "Capitalization."
(o) The statements in the Final Memorandum under the headings
"Business--Franchise, License and Related Agreements,"
"Business--Regulation," "Business--Regulation of International Operations,"
"Business--Legal Proceedings," "Description of the Notes," "Exchange Offer;
Registration Rights," and "Certain United States Federal Tax
Considerations" fairly summarize the matters therein described in all
material respects.
(p) This Agreement has been duly authorized, executed and delivered by
the Company; the Indenture has been duly authorized by the Company and,
assuming due authorization, execution and delivery thereof by the Trustee,
when executed and delivered by the Company, will constitute a legal, valid,
binding instrument enforceable against the Company in accordance with its
terms (subject to applicable bankruptcy, reorganization, insolvency,
moratorium, fraudulent conveyance or other laws affecting creditors' rights
generally from time to time in effect and to general principles of equity);
the Securities have been duly and validly authorized by the Company, and,
when executed, issued and authenticated in accordance with the provisions
of the Indenture and delivered to and paid for in full by the Initial
Purchasers, will have been duly executed and delivered by the Company and
will constitute the legal, valid and binding obligations of the Company
entitled to the benefits of the Indenture (subject to applicable
bankruptcy, insolvency, moratorium, fraudulent conveyance or other laws
affecting creditors' rights generally from time to time in effect and to
general principles of equity); on the Closing Date the Exchange Securities
will have been duly authorized by the Company, and, when executed, issued
and authenticated in accordance with the terms of the Exchange Offer and
the provisions of the Indenture, will constitute the legal, valid and
binding obligations of the Company entitled to the benefits of the
Indenture (subject to applicable bankruptcy, insolvency, moratorium,
fraudulent conveyance or other laws affecting creditors' rights generally
from time to time in effect and
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<PAGE>
to general principles of equity); the Registration Rights Agreement has
been duly authorized by the Company, and, assuming due authorization,
execution and delivery thereof by the Initial Purchasers, when executed and
delivered by the Company, will constitute the legal, valid, binding and
enforceable instrument of the Company (subject to applicable bankruptcy,
reorganization, insolvency, moratorium, fraudulent conveyance or other laws
affecting creditors' rights generally from time to time in effect and to
general principles of equity); the Security Agreement has been duly
authorized by the Company and, assuming due authorization, execution and
delivery thereof by the Trustee and the Securities Intermediary, when
executed and delivered by the Company, will constitute the legal, valid,
binding and enforceable instrument of the Company (subject to applicable
bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance
or other laws affecting creditors' rights generally from time to time in
effect and to general principles of equity).
(q) No consent, approval, authorization, filing with or order of any
court or governmental agency or body is required in connection with the
transactions contemplated herein or in the Indenture, the Security
Agreement or the Registration Rights Agreement, except such as will be
obtained under the Act and the Trust Indenture Act in connection with the
registration of the Exchange Securities or the Securities, as the case may
be, as contemplated by the Registration Rights Agreement and such as may be
required under the blue sky laws of any jurisdiction in connection with the
purchase and distribution of the Securities by the Initial Purchasers in
the manner contemplated herein, in the Final Memorandum and the
Registration Rights Agreement.
(r) None of the execution and delivery of the Indenture, this
Agreement, the Security Agreement and the Registration Rights Agreement,
the issue and sale of the Securities, the consummation of any of the
transactions herein or therein contemplated, or the fulfillment of the
terms hereof or thereof, will conflict with, result in a breach or
violation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of its subsidiaries, pursuant to
(i) the charter or by-laws of the Company or any of its subsidiaries; (ii)
the terms of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation, condition,
covenant or instrument to which the Company or any of its subsidiaries is a
party or bound or to which its or their property is subject; or (iii) any
statute, law, rule, regulation, judgment, order
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<PAGE>
or decree applicable to the Company or any of its subsidiaries of any
court, regulatory body, administrative agency, governmental body,
arbitrator or other authority having jurisdiction over the Company or any
of its subsidiaries or any of its or their properties, except in the case
of clauses (ii) and (iii), as could not be reasonably expected to have,
singly or in the aggregate, a material adverse effect on the condition
(financial or otherwise), prospects, earnings, business or properties of
the Company and its subsidiaries, taken as a whole, whether or not arising
from transactions in the ordinary course of business.
(s) The consolidated historical financial statements of the Company
and its consolidated subsidiaries included in the Final Memorandum present
fairly in all material respects the financial condition, results of
operations and cash flows of the Company as of the dates and for the
periods indicated and have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis throughout the
periods involved (except as otherwise noted therein); the selected
financial data set forth under the caption "Selected Consolidated Financial
Data" in the Final Memorandum fairly present, on the basis stated in the
Final Memorandum, the information included therein.
(t) No action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or any of its subsidiaries or its or their property is pending or,
to the best knowledge of the Company, threatened that (i) could reasonably
be expected to have a material adverse effect on the performance of this
Agreement, the Indenture, the Security Agreement or the Registration Rights
Agreement, or the consummation of any of the transactions contemplated
hereby or thereby; or (ii) could reasonably be expected to have a material
adverse effect on the condition (financial or otherwise), prospects,
earnings, business or properties of the Company and its subsidiaries, taken
as a whole, whether or not arising from transactions in the ordinary course
of business, except as set forth in or contemplated in the Final Memorandum
(exclusive of any amendment or supplement thereto).
(u) Except as described in the Final Memorandum, each of the Company
and each of its subsidiaries owns, licenses, leases or has obtained
rights-of-way for all such properties as are necessary to the conduct of
its operations as presently conducted. The Company and each of its
subsidiaries has good and marketable title, free and clear of all liens or
encumbrances, to
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<PAGE>
all property and assets described in the Final Memorandum as being owned by
it on the date hereof and such properties and assets are in good repair and
suitable for use as so described except as set forth in the Final
Memorandum. All leases to which the Company or its subsidiaries are a party
are valid and binding (subject to applicable bankruptcy, reorganization,
insolvency, moratorium, fraudulent conveyance or other laws affecting
creditors' rights generally from time to time in effect and to general
principles of equity) and no default has occurred or is continuing
thereunder which could have, singly or in the aggregate, a material adverse
effect on the condition (financial or otherwise), prospects, earnings,
business or properties of the Company and its subsidiaries, taken as a
whole, whether or not arising from transactions in the ordinary course of
business, and the Company and each subsidiary enjoy peaceful and
undisturbed possession under all such leases to which any of them is a
party as lessee with such exceptions as do not interfere materially with
the use made by the Company or such subsidiary.
(v) Neither the Company nor any subsidiary is in violation or default
of (i) any provision of its charter or bylaws; (ii) the terms of any
indenture, contract, lease, mortgage, deed of trust, note agreement, loan
agreement or other agreement, obligation, condition, covenant or instrument
to which it is a party or bound or to which its property is subject; or
(iii) any statute, law, rule, regulation, judgment, order or decree
applicable to the Company or any of its subsidiaries of any court,
regulatory body, administrative agency, governmental body, arbitrator or
other authority having jurisdiction over the Company or such subsidiary or
any of its properties, as applicable, except in the case of clauses (ii)
and (iii) as could not be reasonably expected to have, singly or in the
aggregate, a material adverse effect on the condition (financial or
otherwise), prospects, earnings, business or properties of the Company and
its subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business.
(w) Each of (i) M.R. Weiser & Co. LLP and (ii) Ernst & Young LLP, each
of whom have audited certain financial statements of the Company and its
consolidated subsidiaries and delivered their report with respect to the
audited consolidated financial statements included in the Final Memorandum,
are independent public accountants with respect to the Company within the
meaning of the Act and the applicable published rules and regulations
thereunder.
8
<PAGE>
(x) The Company and each subsidiary has filed all foreign, federal,
state and local tax returns that are required to be filed or has requested
extensions thereof except in any case in which the failure so to file would
not have, singly or in the aggregate, a material adverse effect on the
condition (financial or otherwise), prospects, earnings, business or
properties of the Company and its subsidiaries, taken as a whole, whether
or not arising from transactions in the ordinary course of business, and
has paid all taxes required to be paid by it and any other assessment, fine
or penalty levied against it, to the extent that any of the foregoing is
due and payable, except for any such assessment, fine or penalty that is
currently being contested in good faith or as would not have, singly or in
the aggregate, a material adverse effect on the condition (financial or
otherwise), prospects, earnings, business or properties of the Company and
its subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business.
(y) No labor problem or dispute with the employees of the Company or
any of its subsidiaries exists or is threatened or imminent that could
have, singly or in the aggregate, a material adverse effect on the
condition (financial or otherwise), prospects, earnings, business or
properties of the Company and its subsidiaries, taken as a whole, whether
or not arising from transactions in the ordinary course of business.
(z) The Company and each of its subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in
such amounts as are prudent and customary in the businesses in which they
are engaged; all policies of insurance and fidelity or surety bonds
insuring the Company or any of its subsidiaries or their respective
businesses, assets, employees, officers and directors are in full force and
effect; the Company and its subsidiaries are in compliance with the terms
of such policies and instruments in all material respects; and there are no
claims by the Company or any of its subsidiaries under any such policy or
instrument as to which any insurance company is denying liability or
defending under a reservation of rights clause; neither the Company nor any
such subsidiary has been refused any insurance coverage sought or applied
for; and neither the Company nor any such subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage
as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost
that would not have, singly or in the aggregate, a material adverse effect
on the condition (financial or otherwise), prospects, earnings, business or
properties of the Company and
9
<PAGE>
its subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business.
(aa) Except as described in the Final Memorandum, no subsidiary of the
Company is currently prohibited, directly or indirectly, from paying any
dividends to the Company, from making any other distribution on such
subsidiary's capital stock, from repaying to the Company any loans or
advances to such subsidiary from the Company or from transferring any of
such subsidiary's property or assets to the Company or any other subsidiary
of the Company.
(bb) Except as described in the Final Memorandum, the Company and its
subsidiaries (i) possess the certificates, authorizations, approvals,
franchises, licenses, rights-of-way and permits issued by the appropriate
federal, state, local or foreign regulatory authorities necessary to
conduct their respective businesses as presently conducted, (ii) are not in
violation of any such certificates, authorizations, approvals, franchises,
licenses, rights-of-way and permits, except where such violation would not
have a material adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company and its
subsidiaries, taken as a whole, whether or not arising from transactions in
the ordinary course of business and (iii) have not received any notice of
proceedings relating to the revocation or modification of any such
certificate, authorization, approval, franchise, license, right-of-way or
permit which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would have a material adverse effect on the
condition (financial or otherwise), prospects, earnings, business or
properties of the Company and its subsidiaries, taken as a whole, whether
or not arising from transactions in the ordinary course of business.
(cc) The Company and its subsidiaries possess or have applied for
the patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks and trade names (collectively, "Intellectual
Property") presently employed by them in connection with the businesses
now operated by them, and neither the Company nor any of the
Subsidiaries has received any notice of infringement of or conflict with
asserted rights of others with respect to the foregoing except as could
not have, singly or in the aggregate, a material adverse effect on the
condition (financial or otherwise), prospects, earnings,
10
<PAGE>
business or properties of the Company and its subsidiaries, taken as a
whole, whether or not arising from transactions in the ordinary course of
business. To the Company's knowledge, the use of such Intellectual Property
in connection with the business and operations of the Company and its
subsidiaries does not infringe on the rights of any person.
(dd) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(ee) The Company and its subsidiaries are (i) in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"); (ii) have received and are in compliance with all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses as described in
the Final Memorandum; and (iii) have not received notice of any actual or
potential liability for the investigation or remediation of any disposal or
release of hazardous or toxic substances or wastes, pollutants or
contaminants, except where such non-compliance with Environmental Laws,
failure to receive required permits, licenses or other approvals, or
liability would not, individually or in the aggregate, have a material
adverse effect on the condition (financial or otherwise), prospects,
earnings, business or properties of the Company and its subsidiaries, taken
as a whole, whether or not arising from transactions in the ordinary course
of business; neither the Company nor any of the subsidiaries has been
notified that it has been named as a "potentially responsible party" under
the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended.
(ff) Except as described in the Final Memorandum, the Company and its
subsidiaries are implementing a comprehensive, detailed program to analyze
and address the risk that the computer hardware and software used by
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<PAGE>
them may be unable to recognize and properly execute date-sensitive
functions involving certain dates prior to and any dates after December 31,
1999 (the "Year 2000 Problem"), and reasonably believe that such risk will
be remedied on a timely basis without material expense and will not have a
material adverse effect upon the financial condition and results of
operations of the Company and its subsidiaries, taken as a whole.
(gg) Each of the Company and its subsidiaries has fulfilled its
obligations, if any, under the minimum funding standards of Section 302 of
the United States Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and the regulations and published interpretations
thereunder with respect to each "plan" (as defined in Section 3(3) of ERISA
and such regulations and published interpretations) in which employees of
the Company and its subsidiaries are eligible to participate and each such
plan is in compliance in all material respects with the presently
applicable provisions of ERISA and such regulations and published
interpretations; the Company and its subsidiaries have not incurred any
unpaid liability to the Pension Benefit Guaranty Corporation (other than
for the payment of premiums in the ordinary course) or to any such plan
under Title IV of ERISA.
(hh) The subsidiaries listed on Schedule II attached hereto are the
only significant subsidiaries of the Company as defined in Rule 1-02 of
Regulation S-X (individually, a "Subsidiary" and collectively, the
"Subsidiaries").
(ii) None of the transactions contemplated by this Agreement
(including, without limitation, the use of the proceeds from the sale of
the Securities) will violate or result in a violation of Section 7 of the
Exchange Act, or any regulation promulgated thereunder, including, without
limitation, Regulations T, U and X of the Board of Governors of the Federal
Reserve System.
(jj) Neither the Company nor any of the subsidiaries is a "holding
company" or a "subsidiary company" of a holding company, or an "affiliate"
thereof required to be registered under the Public Utility Holding Company
Act of 1935, as amended.
(kk) Neither the Company nor any of its subsidiaries nor, to the
Company's knowledge, any employee or agent of the Company or any
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<PAGE>
subsidiary has made any payment of funds of the Company or any subsidiary
or received or retained any funds in violation of any provision of the
Foreign Corrupt Practices Act of 1977, as amended.
(ll) When the Pledged Securities are transferred to the Trustee in
accordance with the provisions of the Security Agreement, and assuming that
the representations and warranties of the Trustee and the Securities
Intermediary contained in the Security Agreement are true and correct and
compliance by the Trustee and the Securities Intermediary with the
provisions thereof, the pledge of and grant of a security interest in the
Pledged Securities will constitute a valid first priority perfected
security interest in such Pledged Securities, enforceable as such against
all creditors of the Company (and any persons purporting to purchase any of
the Pledged Securities from the Company), subject to applicable bankruptcy,
reorganization, insolvency, moratorium, fraudulent conveyance or other laws
affecting creditors' rights generally from time to time in effect, and all
filings and actions (other than the transfer to the Trustee of the Pledged
Securities) necessary or desirable to perfect and protect such security
interest have been duly taken.
Any certificate signed by any officer of the Company and delivered to
the Representatives or counsel for the Initial Purchasers in connection with the
offering of the Securities shall be deemed a representation and warranty by the
Company, as to matters covered thereby, to each Initial Purchaser.
2. Purchase and Sale. Subject to the terms and conditions and in
reliance upon the representations and warranties herein set forth, the Company
agrees to sell to each Initial Purchaser, and each Initial Purchaser agrees,
severally and not jointly, to purchase from the Company, at a purchase price of
97.000% of the principal amount thereof, plus accrued interest, if any, from the
Closing Date, the principal amount of Securities set forth opposite such Initial
Purchaser's name in Schedule I hereto.
3. Delivery and Payment. Delivery of and payment for the Securities
shall be made at 10:00 A.M., New York City time, on November 25, 1998, or at
such time on such later date (not later than seven full business days
thereafter) as the Representatives shall designate, which date and time may be
postponed by agreement between the Representatives and the Company or as
provided in Section 9 hereof (such date and time of delivery and payment for the
Securities being herein called the "Closing Date"). Delivery of the Securities
shall be made to the
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<PAGE>
Representatives for the respective accounts of the several Initial Purchasers
against payment by the several Initial Purchasers through the Representatives of
the purchase price thereof to or upon the order of the Company by wire transfer
payable in same-day funds to the account specified by the Company. The Company
shall not be obligated to deliver any of the Securities, except upon payment for
all of the Securities to be purchased as provided herein. Delivery of the
Securities shall be made through the facilities of The Depository Trust Company
unless the Representatives shall otherwise instruct.
4. Offering by Initial Purchasers. Each Initial Purchaser, severally
and not jointly, represents and warrants to and agrees with the Company that:
(a) It has not offered or sold, and will not offer or sell, any
Securities except (i) to those it reasonably believes to be qualified
institutional buyers (as defined in Rule 144A under the Act) and that, in
connection with each such sale, it has taken or will take reasonable steps
to ensure that the purchaser of such Securities is aware that such sale is
being made in reliance on Rule 144A; or (ii) in accordance with the
restrictions set forth in Exhibit A hereto.
(b) Neither it nor any person acting on its behalf has made or will
make offers or sales of the Securities in the United States by means of any
form of general solicitation or general advertising (within the meaning of
Regulation D) in the United States.
(c) Each Initial Purchaser will deliver to each purchaser of the
Securities from such Initial Purchaser, in connection with its original
distribution of the Securities, a copy of the Final Memorandum, as amended
and supplemented at the date of such delivery.
5. Agreements. The Company agrees with each Initial Purchaser that:
(a) The Company will furnish to each Initial Purchaser and to counsel
for the Initial Purchasers, without charge, during the period referred to
in paragraph (c) below, as many copies of the Final Memorandum and any
amendments and supplements thereto as it may reasonably request.
(b) The Company will not amend or supplement the Final Memorandum,
other than by filing documents under the Exchange Act that are incorporated
by reference therein, without the prior written consent of the
14
<PAGE>
Representatives, which consent shall not be unreasonably withheld,
conditioned or delayed; provided, however, that, prior to the completion of
the distribution of the Securities by the Initial Purchasers (as determined
by the Initial Purchasers), the Company will not file any document under
the Exchange Act that is incorporated by reference in the Final Memorandum
unless, prior to such proposed filing, the Company has furnished the
Representatives with a copy of such document for their review and the
Representatives have not reasonably objected to the filing of such document
within a reasonable period of time. The Company will promptly advise the
Representatives when any document filed under the Exchange Act that is
incorporated by reference in the Final Memorandum shall have been filed
with the Commission.
(c) If at any time prior to the completion of the sale of the
Securities by the Initial Purchasers (as determined by the
Representatives), any event occurs as a result of which the Final
Memorandum, as then amended or supplemented, would include any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it should be necessary to amend
or supplement the Final Memorandum to comply with applicable law, the
Company promptly (i) will notify the Representatives of any such event;
(ii) subject to the requirements of paragraph (b) of this Section 5, will
prepare an amendment or supplement that will correct such statement or
omission or effect such compliance; and (iii) will supply any supplemented
or amended Final Memorandum to the several Initial Purchasers and counsel
for the Initial Purchasers without charge in such quantities as you may
reasonably request.
(d) The Company will arrange, if necessary, for the qualification of
the Securities for sale by the Initial Purchasers under the laws of such
jurisdictions as the Initial Purchasers may designate and will maintain
such qualifications in effect so long as may be required for the sale of
the Securities; provided that in no event shall the Company be obligated to
qualify to do business in any jurisdiction where it is not now so qualified
or to take any action that would subject it to service of process in suits,
other than those arising out of the offering or sale of the Securities, in
any jurisdiction where it is not now so subject. The Company will promptly
advise the Representatives of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Securities for sale in any jurisdiction or the initiation or threatening of
any proceeding for such
15
<PAGE>
purpose. The Company shall use its best efforts to prevent the issuance of
any order suspending the qualification or exemption of the Securities under
any state securities or Blue Sky laws, and, if at any time any state
securities commission or any other regulatory authority shall issue an
order suspending the qualification or exemption of the Securities under any
state securities or Blue Sky laws, the Company shall use every reasonable
effort to obtain the withdrawal or lifting of such order at the earliest
possible time.
(e) The Company will not, and will not permit any of its Affiliates
to, resell any Securities that have been acquired by any of them for a
period of two years from the Closing Date, except for Securities acquired
by the Company or any of its Affiliates and resold in a transaction
registered under the Act.
(f) Neither the Company, nor any of its Affiliates, nor any person
acting on its or their behalf will, directly or indirectly, make offers or
sales of any security, or solicit offers to buy any security, under
circumstances that would require the registration of the Securities under
the Act.
(g) Neither the Company, nor any of its Affiliates, nor any person
acting on its or their behalf will engage in any form of general
solicitation or general advertising (within the meaning of Regulation D) in
connection with any offer or sale of the Securities in the United States.
(h) So long as any of the Securities are "restricted securities"
within the meaning of Rule 144(a)(3) under the Act, the Company will,
during any period in which it is not subject to and in compliance with
Section 13 or 15(d) of the Exchange Act or it is not exempt from such
reporting requirements pursuant to and in compliance with Rule 12g3-2(b)
under the Exchange Act, provide to each holder of such restricted
securities and to each prospective purchaser (as designated by such holder)
of such restricted securities, upon the request of such holder or
prospective purchaser, any information required to be provided by Rule
144A(d)(4) under the Act. This covenant is intended to be for the benefit
of the holders, and the prospective purchasers designated by such holders,
from time to time of such restricted securities.
(i) Neither the Company, nor any of its Affiliates, nor any person
acting on its or their behalf, will engage in any directed selling efforts
with respect to the Securities, and each of them will comply with the
offering
16
<PAGE>
restrictions requirement of Regulation S. Terms used in this paragraph that
are defined in Regulation S have the meanings given to them by Regulation
S.
(j) The Company will cooperate with the Representatives and use its
best efforts to permit the Securities to be eligible for clearance and
settlement through The Depository Trust Company.
(k) The Company will not for a period of 180 days following the
Execution Time, without the prior written consent of Salomon Smith Barney
Inc., offer, sell or contract to sell, grant any other option to purchase
or otherwise dispose of (or enter into any transaction which is designed
to, or might reasonably be expected to, result in the disposition (whether
by actual disposition or effective economic disposition due to cash
settlement or otherwise) by the Company or any Affiliate of the Company or
any person in privity with the Company or any Affiliate of the Company),
directly or indirectly, any debt securities issued or guaranteed by the
Company (other than the Securities) except to the extent contemplated by
the Registration Rights Agreement or the Final Memorandum.
(l) The Company will not take, directly or indirectly, any action
designed to or which has constituted or which might reasonably be expected
to cause or result, under the Exchange Act or otherwise, in stabilization
or manipulation of the price of any security of the Company to facilitate
the sale or resale of the Securities.
(m) The Company will assist the Initial Purchasers in arranging for
the Securities to be designated PORTAL market securities in accordance with
the rules and regulations adopted by the NASD relating to trading in the
PORTAL market and in maintaining such designation.
(n) The Company will not, for so long as the Securities are
outstanding, be or become, or be or become owned by, an open-end investment
company, unit investment trust or face-amount certificate company that is
or is required to be registered under Section 8 of the Investment Company
Act, and will not be or become, or be or become owned by, a closed-end
investment company required to be registered, but not registered
thereunder.
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<PAGE>
(o) The Company will apply the net proceeds from the sale of the
Securities as set forth in the Offering Memorandum under the heading "Use
of Proceeds."
(p) The Company agrees to pay the costs and expenses relating to the
following matters: (i) the preparation of the Indenture and the
Registration Rights Agreement, the issuance of the Securities and the fees
of the Trustee; (ii) the preparation, printing or reproduction of the
Preliminary Memorandum and Final Memorandum and each amendment or
supplement to either of them; (iii) the printing (or reproduction) and
delivery (including postage, air freight charges and charges for counting
and packaging) of such copies of the Preliminary Memorandum and Final
Memorandum, and all amendments or supplements to either of them, as may, in
each case, be reasonably requested for use in connection with the offering
and sale of the Securities; (iv) the preparation, printing, authentication,
issuance and delivery of certificates for the Securities, including any
stamp or transfer taxes in connection with the original issuance and sale
of the Securities; (v) the printing (or reproduction) and delivery of this
Agreement, any blue sky memorandum and all other agreements or documents
printed (or reproduced) and delivered in connection with the offering of
the Securities; (vi) any registration or qualification of the Securities
for offer and sale under the securities or blue sky laws of the several
states (including filing fees and the reasonable fees and expenses of one
counsel for the Initial Purchasers relating to such registration and
qualification); (vii) admitting the Securities for trading the PORTAL
market; (viii) the transportation and other expenses incurred by or on
behalf of Company representatives in connection with presentations to
prospective purchasers of the Securities; (ix) the fees and expenses of the
Company's accountants and the fees and expenses of counsel (including local
and special counsel) for the Company; and (x) all other costs and expenses
incident to the performance by the Company of its obligations hereunder;
provided, however, that, except as otherwise provided for herein, the
Initial Purchasers shall pay their own costs and expenses, including the
fees of their counsel, and, after the filing and effectiveness of a
registration statement pursuant to the Registration Rights Agreement, any
advertising expenses connected with any offers they may make.
(q) The Company agrees to do and perform all things required to be
done and performed by it under this Agreement that are within its control
on or prior to or after the Closing Date, as applicable, and to use its
best
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<PAGE>
efforts to satisfy all conditions precedent on its part to the delivery of
the Securities.
6. Conditions to the Obligations of the Initial Purchasers. The
obligations of the Initial Purchasers to purchase the Securities shall be
subject to the accuracy of the representations and warranties on the part of the
Company contained herein at the Execution Time and the Closing Date, to the
accuracy of the statements of the Company made in any certificates pursuant to
the provisions hereof, to the performance by the Company of its obligations
hereunder and to the following additional conditions:
(a) The Company shall have requested and caused Arnold L. Wadler,
General Counsel of the Company, to furnish to the Representatives his
opinion, dated the Closing Date and addressed to the Representatives, to
the effect that:
(i) Each of the Company's Subsidiaries has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of the jurisdiction in which it is chartered or organized, with
full corporate power and authority to own or lease, as the case may
be, and to operate its properties and conduct its business as
described in the Final Memorandum;
(ii) all the outstanding shares of capital stock of the Company
and each Subsidiary have been duly and validly authorized and issued
and are fully paid and nonassessable, and, except as otherwise set
forth in the Final Memorandum, all outstanding shares of capital stock
of the Subsidiaries are owned by the Company either directly or
through wholly owned subsidiaries free and clear of any security
interest and, to the knowledge of such counsel, after due inquiry, any
other security interests, claims, liens or encumbrances;
(iii) the Company's authorized capitalization is as set forth in
the Final Memorandum under the heading "Capitalization";
(iv) to the knowledge of such counsel, without conducting a
docket search, there is no pending or threatened action, suit or
proceeding by or before any court or governmental agency, authority or
body or any arbitrator involving the Company or any of its
subsidiaries or its or their property that is not adequately disclosed
in
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the Final Memorandum, except in each case for such proceedings that,
if the subject of an unfavorable decision, ruling or finding would not
singly or in the aggregate, result in a material adverse change in the
condition (final or otherwise), prospects, earnings, business or
properties of the Company and its subsidiaries, taken as a whole; and
the statements in the Final Memorandum under the heading
"Business--Legal Proceedings" fairly summarize the matters therein
described; and
(v) neither the execution and delivery of the Indenture, this
Agreement, the Security Agreement or the Registration Rights
Agreement, the issue and sale of the Securities, nor the consummation
of any other of the transactions herein or therein contemplated, nor
the fulfillment of the terms hereof or thereof, will conflict with,
result in a breach or violation of, or imposition of any lien, charge
or encumbrance upon any property or asset of the Company or its
subsidiaries pursuant to, (i) the charter or by-laws of the Company's
subsidiaries; or (ii) the terms of any indenture, contract, lease,
mortgage, deed of trust, note agreement, loan agreement or other
agreement, obligation, condition, covenant or instrument to which the
Company or any of its subsidiaries is a party or bound or to which its
respective property is subject which is known to such counsel.
(b) The Company shall have requested and caused Paul, Weiss, Rifkind,
Wharton & Garrison, counsel for the Company, to furnish to the
Representatives its opinion, dated the Closing Date and addressed to the
Representatives, to the effect that:
(i) The Company and each of the Subsidiaries incorporated or
organized under the laws of the States of Delaware or New York has
been duly incorporated and is validly existing as a corporation in
good standing under the laws of the State of Delaware or New York, as
applicable, with full corporate power and authority to own or lease,
as the case may be, and to operate its properties and conduct its
business as described in the Final Memorandum;
(ii) the Indenture has been duly authorized, executed and
delivered by the Company, and, assuming due authorization, execution
and delivery thereof by the Trustee, constitutes a legal, valid and
binding instrument enforceable against the Company in
20
<PAGE>
accordance with its terms (subject to applicable bankruptcy,
reorganization, insolvency, moratorium, fraudulent conveyance or other
laws affecting creditors' rights generally from time to time in effect
and to general principles of equity); the Securities have been duly
and validly authorized by the Company, and, when executed, issued and
authenticated in accordance with the provisions of the Indenture and
delivered to and paid for in full by the Initial Purchasers under this
Agreement, will constitute legal, valid and binding obligations of the
Company entitled to the benefits of the Indenture (subject to
applicable bankruptcy, reorganization, insolvency, moratorium,
fraudulent conveyance or other laws affecting creditors' rights
generally from time to time in effect and to general principles of
equity); the Exchange Securities have been duly authorized by the
Company, and, when executed, issued and authenticated in accordance
with the terms of the Exchange Offer and the provisions of the
Indenture, will constitute the legal, valid and binding obligations of
the Company entitled to the benefits of the Indenture (subject to
applicable bankruptcy, insolvency, moratorium, fraudulent conveyance
or other laws affecting creditors' rights generally from time to time
in effect and to general principles of equity); the Registration
Rights Agreement has been duly authorized, executed and delivered by
the Company, and, assuming due authorization, execution and delivery
thereof by the Initial Purchasers, constitutes a legal, valid and
binding instrument enforceable against the Company in accordance with
its terms (subject to applicable bankruptcy, reorganization,
insolvency, moratorium, fraudulent conveyance or other laws affecting
creditors' rights generally from time to time in effect and to general
principles of equity); the Security Agreement has been duly
authorized, executed and delivered by the Company, and the statements
set forth under the heading "Description of the Notes" and "Exchange
Offer; Registration Rights" in the Final Memorandum, insofar as such
statements purport to summarize certain provisions of the Securities,
the Indenture and the Registration Rights Agreement, provide a fair
summary of such provisions;
(iii) the statements in the Final Memorandum under the heading
"Certain United States Federal Tax Considerations" fairly summarize
the matters therein described;
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(iv) such counsel has participated in conferences with officers
and other representatives of the Company, representatives of the
independent accountants of the Company, the Initial Purchasers and
counsel for the Initial Purchasers at which the consents of the Final
Memorandum and related matters were discussed and, although such
counsel is not passing upon, and does not assume any responsibility
for, the accuracy, completeness or fairness of the statements
contained in the Final Memorandum (or any amendments or supplements
thereto) and has made no independent check or verification thereof, on
the basis of the foregoing, no facts have come to the attention of
such counsel that have led such counsel to believe that at the
Execution Time and on the Closing Date the Final Memorandum contained
or contains any untrue statement of a material fact or omitted or
omits to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading (in each case, other than the financial statements,
schedules and other financial and statistical information contained
therein, as to which such counsel need express no opinion);
(v) this Agreement has been duly authorized, executed and
delivered by the Company;
(vi) no consent, approval, authorization, filing with or order of
any court or governmental agency or body under the Federal laws of the
United States or the laws of the State of New York or under the
General Corporation Law of the State of Delaware is required in
connection with the due authorization, execution and delivery of this
Agreement or the due execution, delivery or performance of the
Indenture by the Company, or for the offering, issuance, sale or
delivery of the securities or the Exchange Securities or for the
resale by you in accordance with the terms of this Agreement, except
such as will be obtained under the Act and the Trust Indenture Act in
connection with the registration of the Exchange Securities or the
Securities, as the case may be, as contemplated by the Registration
Rights Agreement and such as may be required under the blue sky or
securities laws of any state or foreign jurisdiction or the NASD or
and such other approvals (specified in such opinion) as have been
obtained (provided that such counsel need not express any opinion with
respect to any consent,
22
<PAGE>
approval, authorization under the Communications Act of 1934, as
amended, or any published rules, regulations or policies of the
Federal Communications Commission (the "FCC") thereunder);
(vii) neither the execution and delivery of the Indenture, this
Agreement, the Security Agreement or the Registration Rights
Agreement, the issue and sale of the Securities, nor the consummation
of any other of the transactions herein or therein contemplated, nor
the fulfillment of the terms hereof or thereof, will conflict with,
result in a breach or violation of, or imposition of any lien, charge
or encumbrance upon any property or asset of the Company or its
subsidiaries pursuant to, (i) the charter or by-laws of the Company;
or (ii) any statute, law, rule or regulation of the Federal government
of the United States (excluding the FCC) or the State of New York or
under the General Corporation Law of the State of Delaware, or to such
counsel's knowledge, any judgment, order or decree applicable to the
Company or any of its subsidiaries of any court, regulatory body,
administrative agency, governmental body, arbitrator or other
authority having jurisdiction over the Company, any of its
subsidiaries or any of their respective properties which is known to
such counsel except as described in the Final Memorandum or for such
violations as could not be reasonably expected to have, singly or in
the aggregate, a material adverse effect on the condition (financial
or otherwise), prospects, earnings, business or properties of the
Company and its subsidiaries, taken as a whole;
(viii) assuming the accuracy of the representations and
warranties contained in the Security Agreement, due performance of the
covenants and agreements contained herein, due compliance with the
offering and transfer procedures and restrictions described in the
Final Memorandum, and that purchasers to whom the Initial Purchasers
initially resell the Securities receive a copy of the Final Memorandum
prior to such sale, no registration of the Securities under the Act,
and no qualification of the Indenture under the Trust Indenture Act,
are required for the offer and sale by the Initial Purchasers of the
Securities in the manner contemplated by this Agreement;
(ix) the Company is not and, after giving effect to the offering
and sale of the Securities and the application of the proceeds
23
<PAGE>
thereof as described in the Final Memorandum, will not be an
"investment company" required to be registered under the Investment
Company Act without taking account of any exemption arising out of the
number of holders of the Company's securities; and
(x) assuming the transfer of the Pledged Securities to the
Trustee in accordance with the provisions of the Security Agreement,
that each of the Trustee and the Securities Intermediary has full
power, authority and legal right to enter into and perform its
obligations thereunder, and, in the case of Clause (B) below, (w) that
at the time of (and immediately preceding) the transfer by the Company
to the Securities Intermediary of any property or assets for deposit
or credit to the Security Account, the Company will have rights in
such property or assets (including, to the extent applicable, rights
within the meaning of Sections 1-201 and 9-203 of the Uniform
Commercial Code as in effect from time to time in the State of New
York), which shall suffice for the grant, creation and attachment of a
valid and effective security interest in such property and assets in
favor of the Trustee, the representations and warranties of the
Trustee and the Securities Intermediary contained in the Security
Agreement are true and correct, the Security Agreement and the
Indenture, and no other agreement or understanding, governs the
duties, obligations and rights of the Trustee and the Securities
Intermediary with respect to the Security Account, and compliance with
the agreements contained therein by the Company, the Trustee and the
Securities Intermediary, then, (A) the Security Agreement constitutes
a valid and legally binding agreement of the Company, enforceable
against the Company in accordance with its terms (subject to
applicable bankruptcy, reorganization, insolvency, moratorium or other
laws affecting creditors' rights generally from time to time in effect
and to general principles of equity, subject to the additional
qualification that certain remedial provisions of the Security
Agreement are or may be unenforceable in whole or in part under the
laws of the State of New York, but the inclusion of such provisions
does not make the remedies afforded by the Security Agreement
inadequate for the practical realization of the rights and benefits
purported to be provided thereby except for the economic consequences
resulting from any delay imposed by, or any procedure required by,
applicable New York laws, rules, regulations, and court decisions and
by constitutional requirements in and of the State of New York, and
except that such
24
<PAGE>
counsel does not express any opinion as to the enforceability of any
provisions contained in the Security Agreement that constitute waivers
which are prohibited under the Uniform Commercial Code as in effect
from time to time in the State of New York) and (B) upon issuance of
the Notes against payment of the purchase price therefor, the Security
Agreement will create a valid and perfected security interest in the
security entitlement in each item Pledged Collateral (as defined in
the Security Agreement) that consists of Financial Assets (as defined
in the Security Agreement) based on United States Treasury Securities
maintained in TRADES (as defined in 31 C.F.R. 357.2) that are credited
to the Security Account (as defined in the Security Agreement)
securing the Obligations (as defined in the Security Agreement) in
effect on the date of such counsel's opinion. Except as specifically
set forth in this paragraph, such counsel shall express no opinion as
to the perfection of any security interest and as to the priority of
any security interest.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the State of
New York, the Federal laws of the United States or the General Corporation Law
of the State of Delaware, to the extent they deem proper and specified in such
opinion, upon the opinion of other counsel of good standing whom they believe to
be reliable and who are reasonably satisfactory to counsel for the Initial
Purchasers; and (B) as to matters of fact, to the extent they deem proper, on
certificates of responsible officers of the Company and public officials.
References to the Final Memorandum in this Section 6(b) include any amendment or
supplement thereto at the Closing Date.
(c) The Company shall have furnished to the Representatives the
opinion of Swidler Berlin Shereff Friedman, LLP, special U.S. regulatory
counsel for the Company, dated the Closing Date, to the effect that:
(i) to the extent they constitute a summary of the regulatory
matters referred to therein, the statements in the Final Memorandum
under the captions "Risk Factors--Extensive Regulation" and
"Business--Regulation" (to the extent that it relates to regulation
under U.S. law) fairly summarize the matters referred to therein;
25
<PAGE>
(ii) neither the execution and delivery of the Purchase Agreement
by the Company nor the performance by the Company of its obligations
under the Purchase Agreement will violate the Communications Act or
the State Telecommunications Laws.
(iii) to the knowledge of such counsel, after due inquiry, (A)
the Company and the Subsidiaries have in effect all the
telecommunications regulatory licenses, permits, authorizations,
consents and approvals required to conduct their respective businesses
as presently conducted; (B) all such licenses, permits,
authorizations, consents and approvals have been duly and validly
issued and are in full force and effect; (C) the Company and the
Subsidiaries are not in violation of any such licenses, permits,
authorizations, consents or approvals; and (D) no proceedings to
revoke or restrict any such licenses, permits, authorizations,
consents or approvals are pending or threatened.
In rendering such opinion, such counsel may state that they express no
opinion as to the laws of any jurisdiction outside the United States.
(d) The Company shall have furnished to the Representatives the
opinion of Baker & McKenzie, special regulatory counsel for the Company,
dated the Closing Date, to the effect that:
(i) to the extent they constitute a summary of the regulatory
matters referred to therein, the statements in the Final Memorandum
under the caption "Business--Regulation of International Operations"
fairly summarize the matters referred to therein;
(ii) no licenses under telecommunications legislation in England
and Wales including the Telecommunications Act 1984, the Wireless
Telegraphy Act 1949 or the Wireless Telegraphy Act 1998 other than the
Licenses are required by the Company, ION LLC, ION or Racal to carry
on the ION Business in the United Kingdom;
(iii) except in relation to the ION Business, no licenses under
telecommunications legislation in England and Wales including the
Telecommunications Act 1984, the Wireless Telegraphy Act 1949 or the
Wireless Telegraphy Act 1998 are currently required by the
26
<PAGE>
Company in relation to the Company's telecommunications business as
presently conducted in the UK; and
(iv) no German telecommunications licenses are currently required
by the Company in relation to the European Network, the German
Network, or the Company's telecommunications businesses as presently
conducted in Germany.
In rendering such opinion, such counsel may state that they express no
opinion as to the laws of any jurisdiction other than Germany or the United
Kingdom or the regulations of the European Union.
(e) The Representatives shall have received from Skadden, Arps, Slate,
Meagher & Flom LLP, counsel for the Initial Purchasers, such opinion or
opinions, dated the Closing Date, addressed to the Representatives, with
respect to the issuance and sale of the Securities, this Agreement, the
Indenture, the Registration Rights Agreement, the Final Memorandum (as
amended or supplemented at the Closing Date) and other related matters as
the Representatives may reasonably require, and the Company shall have
furnished to such counsel such documents as they reasonably request for the
purpose of enabling them to pass upon such matters.
(f) The Company shall have furnished to the Representatives a
certificate of the Company, signed by the Chairman of the Board of
Directors or the President and the principal financial or accounting
officer of the Company, dated the Closing Date, to the effect that the
signers of such certificate have carefully examined the Final Memorandum,
any amendment or supplement to the Final Memorandum and this Agreement and
that:
(i) the representations and warranties of the Company in this
Agreement are true and correct in all material respects on and as of
the Closing Date with the same effect as if made on the Closing Date,
and the Company has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied hereunder at
or prior to the Closing Date; and
(ii) since the date of the most recent financial statements
included in the Final Memorandum (exclusive of any amendment or
supplement thereto), there has been no material adverse change in the
condition (financial or otherwise), prospects, earnings, business or
properties of the Company and its subsidiaries, taken as a whole,
whether or not arising from transactions in the ordinary course of
business, except as set forth in or contemplated by the Final
Memorandum (exclusive of any amendment or supplement thereto).
27
<PAGE>
(g) At the Execution Time and at the Closing Date, the Company shall
have requested and caused Ernst & Young LLP to furnish to the
Representatives letters, dated respectively as of the Execution Time and as
of the Closing Date, in form and substance satisfactory to the
Representatives, confirming that they are independent accountants within
the meaning of the Act and the Exchange Act and the applicable rules and
regulations thereunder, that they have performed a review of the unaudited
interim financial information of the Company for the nine-month period
ended September 30, 1998 and as at September 30, 1998 and stating in effect
that:
(i) in their opinion the audited financial statements and
financial statement schedules included or incorporated in the Final
Memorandum and reported on by them comply as to form in all material
respects with the applicable accounting requirements of the Exchange
Act and the related published rules and regulations thereunder;
(ii) on the basis of a reading of the latest unaudited financial
statements made available by the Company and its subsidiaries; their
limited review in accordance with the standards established under
Statement on Auditing Standards No. 71, of the unaudited interim
financial information for the nine-month period ended September 30,
1998 and as at September 30, 1998, as indicated in their report
included or incorporated in the Final Memorandum; carrying out certain
specified procedures (but not an examination in accordance with
generally accepted auditing standards) which would not necessarily
reveal matters of significance with respect to the comments set forth
in such letter; a reading of the minutes of the meetings of the
stockholders, directors and committees of the Company and the
Subsidiaries; and inquiries of certain officials of the Company who
have responsibility for financial and accounting matters of the
Company and its subsidiaries as to transactions and events subsequent
to December 31, 1997, nothing came to their attention which caused
them to believe that:
(1) any unaudited financial statements included or
incorporated in the Final Memorandum do not comply in form in all
material respects with applicable accounting requirements and
with the published rules and regulations of the Commission with
respect to financial statements included or incorporated in
quarterly reports on Form 10-Q under the Exchange Act; or that
said unaudited financial statements are not in conformity with
generally accepted accounting
28
<PAGE>
principles applied on a basis substantially consistent with that
of the audited financial statements included or incorporated in
the Final Memorandum; or
(2) with respect to the period subsequent to September 30,
1998, there were any changes, at a specified date not more than
three days prior to the date of the letter, in the capital stock,
increase in long-term debt of the Company and its subsidiaries or
decreases in net assets or stockholders' equity of the Company as
compared with the amounts shown on the September 30, 1998
consolidated balance sheet included in the Final Memorandum, or
for the period from October 1, 1998 to such specified date there
were any decreases, as compared with the corresponding period in
the preceding year in revenues or in total or per share amounts
of net income of the Company and its subsidiaries, except in all
instances for changes or decreases set forth in such letter, in
which case the letter shall be accompanied by an explanation by
the Company as to the significance thereof unless said
explanation is not deemed necessary by the Representatives; or
(3) the information included under the headings "Selected
Consolidated Financial Data" and "Management--Executive
Compensation" is not in conformity with the disclosure
requirements of Regulation S-K; and
(iii) they have performed certain other specified procedures as a
result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Company and its subsidiaries) set
forth in the Final Memorandum, including the information set forth
under the captions "Summary," "Risk Factors," "Use of Proceeds,"
"Capitalization," "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business," "Management," and "Certain
Relationships and Related Transactions" in the Final Memorandum, the
information included or incorporated in Items 1, 2, 6, 7 and 11 of the
Company's Annual Report on Form 10-K incorporated in the Final
Memorandum and the information included in the "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" included or incorporated in the Company's Quarterly
29
<PAGE>
Reports on Form 10-Q, incorporated in the Final Memorandum agrees with
the accounting records of the Company and its subsidiaries, excluding
any questions of legal interpretation.
References to the Final Memorandum in this Section 6(g) include both
the Final Memorandum as of the Execution Time and any amendment or supplement
thereto at the date of the applicable letter.
(h) At the Execution Time and at the Closing Date, M.R. Weiser & Co.
LLP shall have furnished to the Representatives letters, dated respectively
as of the Execution Time and as of the Closing Date, in form and substance
satisfactory to the Representatives, confirming that they are independent
accountants within the meaning of the Act and the applicable rules and
regulations thereunder, and stating in effect that:
(i) in their opinion the audited financial statements and
financial statement schedules included in the Final Memorandum and
reported on by them comply in form in all material respects with the
applicable accounting requirements of the Act and the related
published rules and regulations; and
(ii) they have performed certain other specified procedures as a
result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Company and its subsidiaries) set
forth in the Final Memorandum agrees with the accounting records of
the Company and its subsidiaries, excluding any questions of legal
interpretation.
References to the Final Memorandum in this Section 6(h) include both
the Final Memorandum as of the Execution Time and any amendment or supplement
thereto at the date of the applicable letter.
(i) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Final Memorandum (exclusive of any
amendment or supplement thereto), there shall not have been (i) any change
or decrease specified in the letter or letters referred to in paragraph (g)
of this Section 6; or (ii) any change, or any development involving a
prospective change, in or affecting the condition (financial or otherwise),
prospects, earnings, business or properties of the Company and its
subsidiaries, taken as a whole, whether or not arising from transactions in
the ordinary course of business, except as set forth in or contemplated in
the Final Memorandum (exclusive of any amendment or supplement thereto) the
effect of which, in
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any case referred to in clause (i) or (ii) above, is, in the sole
judgment of the Representatives, so material and adverse as to make it
impractical or inadvisable to market the Securities as contemplated by the
Final Memorandum (exclusive of any amendment or supplement thereto).
(j) The Securities shall have been designated as PORTAL-eligible
securities in accordance with the rules and regulations of the NASD, and
the Securities shall be eligible for clearance and settlement through The
Depositary Trust Company.
(k) Subsequent to the Execution Time, there shall not have been any
decrease in the rating of any of the Company's debt securities, including
the Securities, by any "nationally recognized statistical rating
organization" (as defined for purposes of Rule 436(g) under the Act) or any
notice given of any intended or potential decrease in any such rating or of
a possible change in any such rating that does not indicate the direction
of the possible change.
(l) The Initial Purchasers shall have received an executed counterpart
of the Registration Rights Agreement which shall have been executed and
delivered by a duly authorized officer of the Company.
(m) Prior to the Closing Date, the Company shall have furnished to the
Representatives such further information, certificates and documents as the
Representatives may reasonably request.
(n) The Company shall not have failed, on or prior to the Closing
Date, to perform or comply with any of the agreements herein contained and
required to be performed or complied with by the Company on or prior to
such date.
If any of the conditions specified in this Section 6 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Representatives and counsel for the Initial Purchasers,
this Agreement and all obligations of the Initial Purchasers hereunder may be
cancelled at, or at any time prior to, the Closing Date by the Representatives.
Notice of such cancellation shall be given to the Company in writing or by
telephone or facsimile confirmed in writing.
The documents required to be delivered by this Section 6 will be
delivered at the office of counsel for the Initial Purchasers, at 919 Third
Avenue, New York, New York 10022, on the Closing Date.
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7. Reimbursement of Expenses. If the sale of the Securities provided
for herein is not consummated because any condition to the obligations of the
Initial Purchasers set forth in Section 6 hereof is not satisfied, because of
any termination pursuant to Section 10 hereof or because of any refusal,
inability or failure on the part of the Company to perform any agreement herein
or comply with any provision hereof other than by reason of a default by any of
the Initial Purchasers, the Company will reimburse the Initial Purchasers
severally through Salomon Smith Barney on demand for all out-of-pocket expenses
(including reasonable fees and disbursements of one counsel) that shall have
been incurred by them in connection with the proposed purchase and sale of the
Securities.
8. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Initial Purchaser, the directors, officers,
employees and agents of each Initial Purchaser and each person who controls any
Initial Purchaser with the meaning of either the Act or the Exchange Act against
any and all losses, claims, damages or liabilities, joint or several, to which
they or any of them may become subject under the Act, the Exchange Act or other
Federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities (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 Memorandum, the Final
Memorandum (or in any supplement or amendment thereto) or any information
provided by the Company to any holder or prospective purchaser of Securities
pursuant to Section 5(h), 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, and agrees to reimburse each such indemnified party, as
incurred, for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that (i) the Company will not be liable
in any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any such untrue statement or alleged untrue
statement or omission or alleged omission made in the Preliminary Memorandum or
the Final Memorandum, or in any amendment thereof or supplement thereto, in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of any Initial Purchasers through the Representatives
specifically for inclusion therein and (ii) with respect to any untrue statement
or alleged untrue statement of, or omission or alleged omission to state, a
material fact made in the Preliminary Memorandum, the indemnity agreement
contained in this Section 8(a) shall not inure to the benefit of any Initial
Purchaser (or any of the directors, officers, employees and agents of such
Initial Purchaser or any controlling person of such Initial Purchaser) from whom
the person asserting any such loss, claim, damage or liability purchased the
Securities concerned, to the extent that any such loss, claim, damage or
liability of such Initial Purchaser occurs under the circumstances where it
shall
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have been determined by a court of competent jurisdiction (or appropriate
arbitral proceeding) by final and nonappealable judgment that (w) the Company
had previously furnished copies of the Final Memorandum to the Initial
Purchasers, (x) delivery of the Final Memorandum was required by the Act or
under this Agreement to be made to such person, (y) the untrue statement or
omission of a material fact contained in the Preliminary Memorandum was
corrected in the Final Memorandum and (z) there was not sent or given to such
person, at or prior to the written confirmation of the sale of such Securities
to such person, a copy of the Final Memorandum. This indemnity agreement will be
in addition to any liability which the Company may otherwise have.
(b) Each Initial Purchaser severally and not jointly agrees to
indemnify and hold harmless the Company, each of its directors, each of its
officers, directors, employees, agents and each person who controls the
Company within the meaning of either the Act or the Exchange Act, to the
same extent as the foregoing indemnity from the Company to each Initial
Purchaser, but only with reference to written information relating to such
Initial Purchaser furnished to the Company by or on behalf of such Initial
Purchaser through the Representatives specifically for inclusion in the
Preliminary Memorandum or the Final Memorandum (or in any amendment or
supplement thereto). This indemnity agreement will be in addition to any
liability which any Initial Purchaser may otherwise have. The Company
acknowledges that the statements set forth in the last paragraph of the
cover page regarding the delivery of the Securities, the legend on page 4
concerning stabilization, syndicate covering transactions and penalty bids
and the third and tenth paragraphs under the heading "Plan of Distribution"
in the Preliminary Memorandum and the Final Memorandum, constitute the only
information furnished in writing by or on behalf of the Initial Purchasers
for inclusion in the Preliminary Memorandum or the Final Memorandum (or in
any amendment or supplement thereto).
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party in writing of the
commencement thereof, but the failure so to notify the indemnifying party
(i) will not relieve it from liability under paragraph (a) or (b) above
unless and to the extent it did not otherwise learn of such action and such
failure results in the forfeiture by the indemnifying party of substantial
rights and defenses as determined by a court of competent jurisdiction; and
(ii) will not, in any event, relieve the indemnifying party from any
obligations to any indemnified party other than the indemnification
obligation provided in paragraph (a) or (b) above. The indemnifying party
shall be entitled to assume the defense of such action and appoint counsel
of the indemnifying
33
<PAGE>
party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in
which case the indemnifying party shall not thereafter be responsible for
the fees and expenses of any separate counsel retained by the indemnified
party or parties except as set forth below); provided, however, that such
counsel shall be reasonably satisfactory to the indemnified party.
Notwithstanding the indemnifying party's election to assume the defense of
such action or appoint counsel to represent the indemnified party in an
action, the indemnified party shall have the right to employ separate
counsel (including local counsel), and the indemnifying party shall bear
the reasonable fees, costs and expenses of such separate counsel if (i) the
use of counsel chosen by the indemnifying party to represent the
indemnified party would present such counsel with a conflict of interest,
which has not been waived; (ii) the actual or potential defendants in, or
targets of, any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have been reasonably
advised by such counsel that there are legal defenses available to it
and/or other indemnified parties which are different from or additional to
those available to the indemnifying party; (iii) the indemnifying party
shall not have assumed the defense of the action or employed counsel
reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of the institution
of such action; or (iv) the indemnifying party shall authorize the
indemnified party to employ separate counsel at the expense of the
indemnifying party. In any such case, the indemnifying party shall not, in
connection with any one action or separate but substantially similar
related actions 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 (in addition to any local counsel) for
all indemnified parties. An indemnifying party will not, without the prior
written consent of the indemnified parties, settle or compromise or consent
to the entry of any judgment with respect to any pending or threatened
claim, action, suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified
parties are actual or potential parties to such claim or action) unless
such settlement, compromise or consent includes an unconditional release of
each indemnified party from all liability arising out of such claim,
action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and the Initial Purchasers
agree to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in
connection with investigating or defending same) (collectively "Losses") to
which the Company and one or more of the Initial Purchasers may be subject
in such
34
<PAGE>
proportion as is appropriate to reflect the relative benefits received by
the Company on the one hand and by the Initial Purchasers on the other from
the offering of the Securities; provided, however, that in no case shall
any Initial Purchaser (except as may be provided in any agreement among the
Initial Purchasers relating to the offering of the Securities) be
responsible for any amount in excess of the purchase discount or commission
applicable to the Securities purchased by such Initial Purchaser hereunder.
If the allocation provided by the immediately preceding sentence is
unavailable for any reason, the Company and the Initial Purchasers shall
contribute in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one
hand and of the Initial Purchasers on the other in connection with the
statements or omissions or alleged statements or omissions which resulted
in such Losses, as well as any other relevant equitable considerations.
Benefits received by the Company shall be deemed to be equal to the total
net proceeds from the offering (before deducting expenses) received by it,
and benefits received by the Initial Purchasers shall be deemed to be equal
to the total purchase discounts and commissions in each case set forth on
the cover of the Final Memorandum. Relative fault shall be determined by
reference to, among other things, whether any untrue or any alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information provided by the Company on the one
hand or the Initial Purchasers on the other, the intent of the parties and
their relative knowledge, information and opportunity to correct or prevent
such untrue statement or omission or alleged untrue statement or omission.
The Company and the Initial Purchasers agree that it would not be just and
equitable if contribution were determined by pro rata allocation or any
other method of allocation which does not take account of the equitable
considerations referred to above. Notwithstanding the provisions of this
paragraph (d), 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 8, each person who controls an Initial Purchaser
within the meaning of either the Act or the Exchange Act and each director,
officer, employee and agent of an Initial Purchaser shall have the same
rights to contribution as such Initial Purchaser, and each person who
controls the Company within the meaning of either the Act or the Exchange
Act and each officer and, director, employee and agent of the Company shall
have the same rights to contribution as the Company, subject in each case
to the applicable terms and conditions of this paragraph (d).
9. Default by an Initial Purchaser. If any one or more Initial
Purchasers shall fail to purchase and pay for any of the Securities agreed to be
purchased by such Initial Purchaser hereunder and such failure to purchase shall
35
<PAGE>
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Initial Purchasers shall be obligated severally to take
up and pay for (in the respective proportions which the amount of Securities set
forth opposite their names in Schedule I hereto bears to the aggregate amount of
Securities set forth opposite the names of all the remaining Initial Purchasers)
the Securities which the defaulting Initial Purchaser or Initial Purchasers
agreed but failed to purchase; provided, however, that in the event that the
aggregate amount of Securities which the defaulting Initial Purchaser or Initial
Purchasers agreed but failed to purchase shall exceed 10% of the aggregate
amount of Securities set forth in Schedule I hereto, the remaining Initial
Purchasers shall have the right to (i) make arrangements for the purchase of the
Securities which such defaulting Initial Purchaser or Initial Purchasers agreed
but failed to purchase by other persons satisfactory to the Company and the
non-defaulting Initial Purchasers, and/or (ii) purchase all, but shall not be
under any obligation to purchase any, of the Securities, and if such
nondefaulting Initial Purchasers do not make such arrangements and/or purchase
all the Securities, this Agreement will terminate without liability to any
nondefaulting Initial Purchaser or the Company. In the event of a default by any
Initial Purchaser as set forth in this Section 9, the Closing Date shall be
postponed for such period, not exceeding five Business Days, as the
Representatives shall determine in order that the required changes in the Final
Memorandum or in any other documents or arrangements may be effected. Nothing
contained in this Agreement shall relieve any defaulting Initial Purchaser of
its liability, if any, to the Company or any nondefaulting Initial Purchaser for
damages occasioned by its default hereunder.
10. Termination. This Agreement shall be subject to termination in the
absolute discretion of the Representatives, by notice given to the Company prior
to delivery of and payment for the Securities, if at any time prior to such time
(i) trading in the Company's Common Stock shall have been suspended by the
Commission or the NASDAQ National Market or trading in securities generally on
the New York Stock Exchange or the NASDAQ National Market shall have been
suspended or limited or minimum prices shall have been established on such
Exchange or the NASDAQ National Market; (ii) a banking moratorium shall have
been declared either by Federal or New York State authorities; or (iii) there
shall have occurred any outbreak or escalation of hostilities, declaration by
the United States of a national emergency or war or other calamity or crisis the
effect of which on financial markets is such as to make it, in the sole judgment
of the Representatives, impracticable or inadvisable to proceed with the
offering or delivery of the Securities as contemplated by the Final Memorandum
(exclusive of any amendment or supplement thereto).
11. Representations and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or its officers and of the Initial Purchasers set forth in or made
pursuant to
36
<PAGE>
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of the Initial Purchasers or the Company or
any of the officers, directors, employees, agents or controlling persons
referred to in Section 8 hereof, and will survive delivery of and payment for
the Securities. The provisions of Sections 7 and 8 hereof shall survive the
termination or cancellation of this Agreement.
12. Notices. All communications hereunder will be in writing and
effective only on receipt, and, if sent to the Representatives, will be mailed,
delivered or telefaxed to the Salomon Smith Barney General Counsel (fax no.:
(212) 816-7912) and confirmed to the General Counsel, Salomon Smith Barney at
388 Greenwich Street, New York, New York 10013 Attention: General Counsel; or,
if sent to the Company, will be mailed, delivered or telefaxed to Metromedia
Fiber Network Services, Inc. c/o Metromedia Fiber Network, Inc., One North
Lexington Avenue, White Plains, New York 10601, attention: Chief Financial
Officer (fax no.: (914) 421-6777) and confirmed to it at Metromedia Company, One
Meadowlands Plaza, East Rutherford, New Jersey 07073-2137, attention: General
Counsel (fax no.: (201) 531-2803) and 215 East 67th Street, New York, New York
10021, attention: Executive Vice President (fax no.: (212) 606-4337).
13. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 8 hereof, and,
except as expressly set forth in Section 5(h) or Section 8 hereof, no other
person will have any right or obligation hereunder.
14. Applicable Law. This Agreement will be governed by and construed
in accordance with the laws of the State of New York applicable to contracts
made and to be performed within the State of New York.
15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same instrument.
16. Headings. The section headings used herein are for convenience
only and shall not affect the construction hereof.
17. Definitions. The terms which follow, when used in this Agreement,
shall have the meanings indicated.
"Act" shall mean the Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder.
37
<PAGE>
"Affiliate" shall have the meaning specified in Rule 501 (b) of
Regulation D.
"Business Day" shall mean any day other than a Saturday, a Sunday or a
legal holiday or a day on which banking institutions or trust
companies are authorized or obligated by law to close in The City of
New York.
"Commission" shall mean the Securities and Exchange Commission.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated
thereunder.
"Execution Time" shall mean the date and time that this Agreement is
executed and delivered by the parties hereto.
"Investment Company Act" shall mean the Investment Company Act of
1940, as amended, and the rules and regulations of the Commission
promulgated thereunder.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Regulation D" shall mean Regulation D under the Act.
"Regulation S" shall mean Regulation S under the Act.
"Trust Indenture Act" shall mean the Trust Indenture Act of 1939, as
amended, and the rules and regulations of the Commission promulgated
thereunder.
38
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this Agreement and your acceptance shall represent a binding agreement between
the Company and the several Initial Purchasers.
Very truly yours,
Metromedia Fiber Network, Inc.
By
----------------------------------------
Name:
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Salomon Smith Barney Inc.
Chase Securities Inc.
Deutsche Bank Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
By: Salomon Smith Barney Inc.
By /s/ Stephen M. Winningham
-----------------------------
Name: Stephen M. Winningham
Title: Managing Director
For themselves and the other several
Initial Purchasers named in Schedule I
to the foregoing Agreement.
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Principal Amount of
Securities
Initial Purchasers to be Purchased
------------------ -------------------
<S> <C>
Salomon Smith Barney Inc. .............................................. $ 260,000,000
Chase Securities Inc.................................................... 130,000,000
Deutsche Bank Securities Inc............................................ 130,000,000
Donaldson, Lufkin & Jenrette Securities Corporation..................... 130,000,000
-------------
Total ................................................ $ 650,000,000
</TABLE>
<PAGE>
SCHEDULE II
Subsidiaries
Metromedia Fiber Network Services, Inc.
Metromedia Fiber Network of Illinois, Inc.
Metromedia Fiber Network-NYC, Inc.
Metromedia Fiber Network of New Jersey, Inc.
MFN of VA, L.L.C.
MFN Purchasing, Inc.
<PAGE>
EXHIBIT A
Selling Restrictions for Offers
Sales outside the United States
1. The Securities have not been and will not be registered under the
Act and may not be offered or sold within the United States or to, or for the
account or benefit of, U.S. persons except in accordance with Regulation S under
the Act or pursuant to an exemption from the registration requirements of the
Act. Each Initial Purchaser represents and agrees that, except as otherwise
permitted by Section 4(a)(i) of the Agreement to which this is an exhibit, it
has offered and sold the Securities, and will offer and sell the Securities, (i)
as part of their distribution at any time; and (ii) otherwise until 40 days
after the later of the commencement of the offering and the Closing Date, only
in accordance with Rule 903 of Regulation S under the Act. Accordingly, each
Initial Purchaser represents and agrees that neither it, nor any of its
Affiliates nor any person acting on its or their behalf has engaged or will
engage in any directed selling efforts with respect to the Securities, and that
it and they have complied and will comply with the offering restrictions
requirement of Regulation S. Each Initial Purchaser agrees that, at or prior to
the confirmation of sale of Securities (other than a sale of Securities pursuant
to Section 4(a)(i) of the Agreement to which this is an exhibit), it shall have
sent to each distributor, dealer or person receiving a selling concession, fee
or other remuneration that purchases Securities from it during the distribution
compliance period a confirmation or notice to substantially the following
effect:
"The Securities covered hereby have not been registered under the U.S.
Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder (the "Act"') and may not be offered or sold
within the United States or to, or for the account or benefit of, U.S.
persons (i) as part of their distribution at any time or (ii)
otherwise until 40 days after the later of the commencement of the
offering of the Securities and November 25, 1998, except in either
case in accordance with Regulation S or Rule 144A under the Act. Terms
used above have the meanings given to them by Regulation S."
(a) Each Initial Purchaser also represents and agrees that it has not
entered and will not enter into any contractual arrangement with any
distributor with respect to the distribution of the Securities, except with
its Affiliates or with the prior written consent of the Company.
(b) Terms used in this section and defined in Regulation S have the
meanings given to them by Regulation S.
<PAGE>
2. Each Initial Purchaser represents and agrees that (i) it has not
offered or sold, and will not offer or sell, in the United Kingdom, by means of
any document, any Securities other than to persons whose ordinary business it is
to buy, hold, manage or sell shares or debentures, whether as principal or as
agent (except in circumstances which do not constitute an offer to the public
within the meaning of the Public Offers of Securities Regulations 1995); (ii) it
has complied and will comply with all applicable provisions of the Financial
Services Act 1986 of the United Kingdom with respect to anything done by it in
relation to the Securities in, from or otherwise involving the United Kingdom;
and (iii) it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the issue of the
Securities to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996
or is a person to whom the document may otherwise lawfully be issued or passed
on.
<PAGE>
Exhibit 10.18
METROMEDIA FIBER NETWORK, INC.
10% Senior Notes Due 2008
REGISTRATION RIGHTS AGREEMENT
New York, New York
November 25, 1998
Salomon Smith Barney
Chase Securities Inc.
Deutsche Bank Securities Inc
Donaldson Lufkin & Jenrette Securities Corporation
As Representatives of the Initial Purchasers
c/o Salomon Smith Barney Inc.
388 Greenwich Street
New York, NY 10013
Dear Sirs:
Metromedia Fiber Network, Inc., a corporation organized under the laws of
Delaware (the "Company"), proposes to issue and sell (the "Initial Placement")
to certain purchasers (the "Initial Purchasers"), upon the terms set forth in a
purchase agreement, dated November 20, 1998 (the "Purchase Agreement"),
$650,000,000 aggregate principal amount of 10% Senior Notes due 2008 (the
"Securities"). To induce the Initial Purchasers to enter into the Purchase
Agreement and to satisfy a condition of your obligations thereunder, the Company
agrees with you for your benefit and the benefit of the holders from time to
time of the Securities (including the Initial Purchasers) (each a "Holder" and,
together, the "Holders"), as follows:
1. Definitions. Capitalized terms used herein without definition shall have
their respective meanings set forth in the Purchase Agreement. As used in this
Agreement, the following capitalized defined terms shall have the following
meanings:
"Act" shall mean the Securities Act of 1933, as amended, and the rules and
regulations of the Commission promulgated thereunder.
<PAGE>
"Affiliate" of any specified Person shall have the meaning set forth under
Rule 405 promulgated under the Act.
"Broker-Dealer" shall mean any broker or dealer registered as such under
the Exchange Act.
"Business Day" shall mean any day other than a Saturday, a Sunday or a
legal holiday or a day on which banking institutions or trust companies are
authorized or obligated by law to close in New York City.
"Commission" shall mean the Securities and Exchange Commission.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Exchange Offer Registration Period" shall mean the 180 day period
following the consummation of the Registered Exchange Offer, exclusive of any
period during which any stop order shall be in effect suspending the
effectiveness of the Exchange Offer Registration Statement.
"Exchange Offer Registration Statement" shall mean a registration statement
of the Company on an appropriate form under the Act with respect to the
Registered Exchange Offer, all amendments and supplements to such registration
statement, including post-effective amendments thereto, in each case including
the Prospectus contained therein, all exhibits thereto and all material
incorporated by reference therein.
"Exchanging Dealer" shall mean any Holder (which may include any Initial
Purchaser) that is a Broker-Dealer and elects to exchange for New Securities any
Securities that it acquired for its own account as a result of market-making
activities or other trading activities (but not directly from the Company or any
Affiliate of the Company).
"Final Memorandum" shall have the meaning set forth in the Purchase
Agreement.
"Holder" shall have the meaning set forth in the preamble hereto.
"Indenture" shall mean the Indenture relating to the Securities and the New
Securities, dated as of November 25, 1998, between the Company and IBJ
2
<PAGE>
Schroder Bank & Trust Company, as trustee, as the same may be amended from time
to time in accordance with the terms thereof.
"Initial Placement" shall have the meaning set forth in the preamble
hereto.
"Initial Purchaser" shall have the meaning set forth in the preamble
hereto.
"Losses"' shall have the meaning set forth in Section 6(d) hereof.
"Majority Holders" shall mean the Holders of a majority of the aggregate
principal amount of Transfer Restricted Securities or New Securities, as
applicable, registered under a Registration Statement.
"Managing Underwriters" shall mean the investment banker or investment
bankers and manager or managers that shall administer an underwritten offering.
"New Securities" shall mean debt securities of the Company identical in all
material respects to the Securities (except that (i) the liquidated damages
provisions and the transfer restrictions shall be modified or eliminated, as
appropriate and (ii) interest on the New Securities shall accrue from the last
date on which interest was paid on the Securities or, if no such interest has
been paid, from the date hereof) and to be issued under the Indenture.
"Prospectus" shall mean the prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A under the Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Transfer Restricted Securities or the New
Securities covered by such Registration Statement, and all amendments and
supplements thereto and all material incorporated by reference therein.
"Purchase Agreement" shall have the meaning set forth in the preamble
hereto.
"Registered Exchange Offer" shall mean the proposed offer of the Company to
issue and deliver to the Holders of the Transfer Restricted Securities
3
<PAGE>
that are not prohibited by any law or policy of the Commission from
participating in such offer in exchange for the Transfer Restricted Securities,
a like aggregate principal amount of the New Securities pursuant to Section 2
hereof.
"Registration Statement" shall mean any Exchange Offer Registration
Statement or Shelf Registration Statement that covers any of the Transfer
Restricted Securities or the New Securities pursuant to the provisions of this
Agreement, any 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.
"Securities" shall have the meaning set forth in the preamble hereto.
"Shelf Registration" shall mean a registration effected pursuant to Section
3 hereof.
"Shelf Registration Period" has the meaning set forth in Section 3 (b)
hereof.
"Shelf Registration Statement" shall mean a "shelf" registration statement
of the Company pursuant to the provisions of Section 3 hereof, which covers some
or all of the Transfer Restricted Securities or New Securities, as applicable,
on an appropriate form under Rule 415 under the Act, or any similar rule that
may be adopted by the Commission, 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.
"Transfer Restricted Securities" shall mean each Security until (i) the
date on which such Security has been exchanged by a person other than a Broker-
Dealer for a New Security in the Registered Exchange Offer, (ii) following the
exchange by a Broker-Dealer in the Registered Exchange Offer of a Security for a
New Security, the date on which such New Security is sold to a purchaser who
receives from such Broker-Dealer on or prior to the date of such sale a copy of
the Prospectus contained in the Exchange Offer Registration Statement, (iii) the
date on which such Security has been effectively registered under the Act and
disposed of in accordance with the Shelf Registration Statement, (iv) the date
on which such Security is distributed to the public under Rule 144 promulgated
under the Act or (v) the date on which such Note is eligible for resale pursuant
to Rule 144 without volume restrictions.
4
<PAGE>
"Trustee" shall mean the trustee with respect to the Securities and, when
issued, the New Securities, under the Indenture.
"Underwriter" shall mean any underwriter of Transfer Restricted Securities,
or New Securities, as applicable, in connection with an offering thereof under a
Shelf Registration Statement.
2. Registered Exchange Offer. (a) To the extent not prohibited by any
applicable law or applicable interpretation of the Commission, the Company shall
prepare and, not later than 90 days following the date of the original issuance
of the Securities (or if such 90th day is not a Business Day, the next
succeeding Business Day) shall file with the Commission the Exchange Offer
Registration Statement with respect to the Registered Exchange Offer. The
Company shall use its reasonable best efforts to cause the Exchange Offer
Registration Statement to become effective under the Act within 180 days of the
date of the original issuance of the Securities (or if such 180th day is not a
Business Day, the next succeeding Business Day).
(b) Upon the effectiveness of the Exchange Offer Registration
Statement, the Company shall promptly commence the Registered Exchange
Offer, it being the objective of such Registered Exchange Offer to enable
each Holder electing to exchange Transfer Restricted Securities for New
Securities (assuming that such Holder is not an Affiliate of the Company,
is not a Broker-Dealer that purchases New Securities from the Company to
resell pursuant to Rule 144A promulgated under the Act or any other
available exemption, acquires the New Securities in the ordinary course of
such Holder's business, has no arrangements or understanding with any
Person to participate in the distribution of the New Securities and is not
participating in, and does not intend to participate in the distribution of
such New Securities and is not prohibited by any law or policy of the
Commission from participating in the Registered Exchange Offer) to trade
such New Securities from and after their receipt without any limitations or
restrictions under the Act and without material restrictions under the
securities laws of a substantial proportion of the several states of the
United States.
(c) In connection with the Registered Exchange Offer, the Company
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;
5
<PAGE>
(ii) keep the Registered Exchange Offer open for not less than 20
Business Days after the date notice thereof is mailed to the Holders
(or longer if required by applicable law);
(iii) use its reasonable best efforts to keep the Exchange Offer
Registration Statement continuously effective under the Act,
supplemented and amended as required, to ensure that it is available
for sales of New Securities by Exchanging Dealers during the Exchange
Offer Registration Period;
(iv) utilize the services of a depositary for the Registered
Exchange Offer with an address in the Borough of Manhattan in New York
City, which may be the Trustee or its Affiliates;
(v) permit Holders to withdraw tendered Securities at any time
prior to the close of business, New York time, on the last Business
Day on which the Registered Exchange Offer is open;
(vi) prior to effectiveness of the Exchange Offer Registration
Statement, provide a supplemental letter to the Commission (A) stating
that the Company is conducting the Registered Exchange Offer in
reliance on the position of the Commission in Exxon Capital Holdings
Corporation (pub. avail. May 13, 1988), Morgan Stanley and Co., Inc.
(pub. avail. June 5, 1991); and (B) including a representation that
the Company has not entered into any arrangement or understanding with
any Person to distribute the New Securities to be received in the
Registered Exchange Offer and that, to the best of the Company's
information and belief, each Holder participating in the Registered
Exchange Offer is acquiring the New Securities in the ordinary course
of business and has no arrangement or understanding with any Person to
participate in the distribution of the New Securities; and
(vii) comply in all respects with all applicable laws.
(d) As soon as practicable after the close of the Registered Exchange
Offer, the Company shall:
6
<PAGE>
(i) accept for exchange all Transfer Restricted Securities
tendered and not validly withdrawn pursuant to the Registered
Exchange Offer in accordance with the terms of the Exchange Offer
Registration Statement and the letter of transmittal which is an
exhibit thereto;
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation in accordance with Section 4(s) all Transfer Restricted
Securities so accepted for exchange; and
(iii) cause the Trustee promptly to authenticate and deliver to
each Holder of Transfer Restricted Securities an aggregate principal
amount of New Securities equal to the aggregate principal amount of
the Transfer Restricted Securities of such Holder so accepted for
exchange.
(e) Each Holder hereby acknowledges and agrees that any Broker-Dealer
and any such Holder using the Registered Exchange Offer to participate in a
distribution of the New Securities (x) could not under Commission policy as
in effect on the date of this Agreement rely on the position of the
Commission in Morgan Stanley and Co.. Inc. (pub. avail. June 5, 1991) and
Exxon Capital Holdings Corporation (pub. avail. May 13, 1988), as
interpreted in the Commission's letter to Shearman & Sterling dated July 2,
1993 and similar no-action letters; and (y) must comply with the
registration and prospectus delivery requirements of the Act in connection
with any secondary resale transaction and that such a secondary resale
transaction must be covered by an effective registration statement
containing the selling security holder information required by Item 507 or
508, as applicable, of Regulation S-K under the Act, if the resales are of
New Securities obtained by such Holder in exchange for Securities acquired
by such Holder directly from the Company or one of its Affiliates.
Accordingly, each Holder participating in the Registered Exchange Offer
shall be required to represent to the Company that, at the time of the
consummation of the Registered Exchange Offer:
(i) any New Securities received by such Holder is acquired in the
ordinary course of business;
(ii) such Holder has no arrangement or understanding with any
Person to participate in the distribution of the New Securities and
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<PAGE>
is not participating in, and does not intend to participate in the
distribution of such New Securities within the meaning of the Act;
and
(iii) such Holder is not an Affiliate of the Company.
In addition, any such Holder shall be required to make such other
representations as may be reasonably necessary under applicable rules,
regulations or interpretations of the Commission to render the use of Form S-4
or other applicable form under the Act available.
(f) If any Initial Purchaser determines that it is not eligible to
participate in the Registered Exchange Offer with respect to the exchange
of Transfer Restricted Securities constituting any portion of an unsold
allotment, at the request of such Initial Purchaser, the Company shall
issue and deliver to such Initial Purchaser or the Person purchasing New
Securities registered under a Shelf Registration Statement as contemplated
by Section 3 hereof from such Initial Purchaser, in exchange for such
Securities, a like aggregate principal amount of New Securities (except
that such New Securities will contain the transfer restrictions contained
in the Securities). The Company shall use its reasonable best efforts to
cause the CUSIP Service Bureau to issue the same CUSIP number for such New
Securities as for New Securities issued pursuant to the Registered Exchange
Offer.
3. Shelf Registration. (a) If (i) due to any change in law or applicable
interpretations thereof by the Commission's staff, the Company determines upon
advice of its outside counsel that it is not permitted to effect the Registered
Exchange Offer as contemplated by Section 2 hereof; or (ii) for any other reason
the Registered Exchange Offer is not consummated within 180 days of the date
hereof; or (iii) if any Holder of Transfer Restricted Securities shall notify
the Company within 20 days following the consummation of the Registered Exchange
Offer that (A) such Holder was prohibited by law or Commission policy from
participating in the Registered Exchange Offer or (B) such Holder may not resell
the New Securities acquired by it in the Registered Exchange Offer to the public
without delivering a prospectus and the Prospectus contained in the Exchange
Offer Registration Statement is not appropriate or available for such resale (it
being understood that (x) the requirement that an Initial Purchaser deliver a
prospectus containing the information required by Item 507 or 508 of Regulation
S-K under the Act in connection with sales of New Securities acquired in
exchange for such Securities shall result in the Prospectus contained in the
Exchange Offer Registration Statement being not appropriate for such resale; and
(y) the requirement that an Exchanging Dealer
8
<PAGE>
deliver a prospectus in connection with sales of New Securities acquired in the
Registered Exchange Offer in exchange for Securities acquired as a result of
market-making activities or other trading activities shall not result in such
Prospectus being not appropriate for such resale) or (C) such Holder is a
Broker-Dealer and holds Securities acquired directly from the Company or any of
its Affiliates, the Company shall effect a Shelf Registration Statement in
accordance with subsection (b) below.
(b)(i) The Company shall use its reasonable best efforts to
as promptly as practicable (but in no event more than 30 days after so
required or requested pursuant to this Section 3), file the Shelf
Registration Statement with the Commission and thereafter shall use its
reasonable best efforts to cause such Shelf Registration Statement to
be declared effective under the Act within 120 days after the Company
is required to file a Shelf Registration Statement relating to the
offer and sale of the Transfer Restricted Securities or the New
Securities, as applicable, by the Holders thereof from time to time in
accordance with the methods of distribution elected by such Holders and
set forth in such Shelf Registration Statement; provided, however that
no Holder (other than an Initial Purchaser) shall be entitled to have
the Transfer Restricted Securities or the New Securities, as
applicable, held by it covered by such Shelf Registration Statement
unless such Holder agrees in writing to be bound by all of the
provisions of this Agreement applicable to such Holder; and provided
further, that with respect to New Securities received by an Initial
Purchaser in exchange for Securities constituting any portion of an
unsold allotment, the Company may, if permitted by current
interpretations by the Commission's staff, file a post-effective
amendment to the Exchange Offer Registration Statement containing the
information required by Item 507 or 508 of Regulation S-K, as
applicable, in satisfaction of its obligations under this subsection
with respect thereto, and any such Exchange Offer Registration
Statement, as so amended, shall be referred to herein as, and governed
by the provisions herein applicable to, a Shelf Registration Statement.
(ii) The Company shall use its reasonable best efforts to
keep the Shelf Registration Statement continuously effective,
supplemented and amended as required by the Act, in order to
permit the Prospectus forming part thereof to be usable by
Holders for a period of two years from the date the Shelf
Registration Statement is declared effective by the Commission or
such shorter period that will terminate when all the Transfer
Restricted Securities or New Securi-
9
<PAGE>
ties, as applicable, covered by the Shelf Registration Statement
have been sold pursuant to the Shelf Registration Statement (in
any such case, such period being called the "Shelf Registration
Period"). The Company shall be deemed not to have used its
reasonable best efforts to keep the Shelf Registration Statement
effective during the requisite period if it voluntarily takes any
action that would result in Holders of Securities covered thereby
not being able to offer and sell such Securities during that
period, unless (A) such action is required by applicable law or
this Agreement; or (B) such action is taken by the Company in
good faith and for valid business reasons (not including
avoidance of the Company's obligations hereunder), including the
acquisition or divestiture of assets, so long as the Company
promptly thereafter complies with the requirements of Section
4(k) hereof, if applicable.
(iii) The Company shall cause the Shelf Registration
Statement and the related Prospectus and any amendment or
supplement thereto, as of the effective date of the Shelf
Registration Statement or such amendment or supplement, (A) to
comply in all material respects with the applicable requirements
of the Act; and (B) not to contain any untrue statement of a
material fact or omit to state a 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.
4. Additional Registration Procedures. In connection with any Shelf
Registration Statement and, to the extent applicable, any Exchange Offer
Registration Statement, the following provisions shall apply.
(a) The Company shall:
(i) furnish to you, not less than five Business Days prior
to the filing thereof with the Commission, a draft copy of any
Exchange Offer Registration Statement and any Shelf Registration
Statement, and furnish to you each amendment thereof and each
amendment or supplement, if any, to the Prospectus included
therein (including all documents incorporated by reference
therein after the initial filing) and shall use its reasonable
best efforts to reflect in each such document, when so filed with
the Commission, such comments as you reasonably propose;
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<PAGE>
(ii) include the information set forth in Annex A hereto on the
inside front cover page of the Prospectus included in the Exchange
Offer Registration Statement, in Annex B hereto in the forepart of the
Exchange Offer Registration Statement in a section setting forth
details of the Exchange Offer, in Annex C hereto in the underwriting
or plan of distribution section of the Prospectus contained in the
Exchange Offer Registration Statement, and in Annex D hereto in the
letter of transmittal delivered pursuant to the Registered Exchange
Offer, in each case, only to the extent allowed by the rules and
regulations issued by, and the interpretations of, the Commission and
with such changes as are required by such rules, regulations and
interpretations as the Company shall determine in its sole
discretion;
(iii) if requested by an Initial Purchaser, include the
information required by Item 507 or 508 of Regulation S-K, as
applicable, in the Prospectus contained in the Exchange Offer
Registration Statement; and
(iv) in the case of a Shelf Registration Statement, include the
names of the Holders that propose to sell Securities pursuant to the
Shelf Registration Statement as selling security holders.
(b) The Company shall ensure that (other than with respect to the
information required to be supplied by the selling Holders pursuant to this
Agreement):
(i) any Registration Statement and any amendment thereto and any
Prospectus forming part thereof and any amendment or supplement
thereto complies in all material respects with the Act; and
(ii) any Registration Statement and any amendment thereto does
not, when it becomes effective, 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 the light of
the circumstances under which they were made, not misleading.
(c) The Company shall advise you, the Holders of Securities covered by
any Shelf Registration Statement and any Exchanging Dealer under any
Exchange Offer Registration Statement that has provided in
11
<PAGE>
writing to the Company a telephone or facsimile number and address for
notices, and, if requested by you or any such Holder or Exchanging Dealer,
shall confirm such advice in writing (which notice pursuant to clauses
(ii)-(v) hereof shall be accompanied by an instruction to suspend the use
of the Prospectus until the Company shall have remedied the basis for such
suspension):
(i) when a Registration Statement and any amendment thereto has
been filed with the Commission and when the Registration Statement or
any post-effective amendment thereto has become effective;
(ii) of any request by the Commission for any amendment or
supplement to the Registration Statement or the Prospectus or for
additional information;
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose;
(iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the securities
included therein for sale in any jurisdiction or the initiation of any
proceeding for such purpose; and
(v) of the happening of any event that requires any change in the
Registration Statement or the Prospectus so that, as of such date, the
statements therein are not misleading and do not omit to state a
material fact required to be stated therein or necessary to make the
statements therein (in the case of the Prospectus, in the light of the
circumstances under which they were made) not misleading.
(d) The Company shall use its reasonable best efforts to obtain the
withdrawal of any order suspending the effectiveness of any Registration
Statement or the qualification of the securities therein for sale in any
jurisdiction, at the earliest possible time.
(e) The Company shall furnish to each Holder of Transfer Restricted
Securities or New Securities, as applicable, covered by any Shelf
Registration Statement, without charge, at least one copy of such Shelf
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<PAGE>
Registration Statement and any post-effective amendment thereto, including
all material incorporated therein by reference, and, if the Holder so
requests in writing, all exhibits thereto (including exhibits incorporated
by reference therein).
(f) The Company shall, during the Shelf Registration Period, deliver
to each Holder of Transfer Restricted Securities or New Securities, as
applicable, covered by any Shelf Registration Statement, without charge, as
many copies of the Prospectus (including each preliminary Prospectus)
included in such Shelf Registration Statement and any amendment or
supplement thereto as such Holder may reasonably request. The Company
consents to the use of the Prospectus or any amendment or supplement
thereto by each of the selling Holders of Transfer Restricted Securities or
New Securities, as applicable, in connection with the offering and sale of
the Transfer Restricted Securities or New Securities, as applicable,
covered by the Prospectus, or any amendment or supplement thereto, included
in the Shelf Registration Statement.
(g) The Company shall furnish to each Exchanging Dealer which so
requests, without charge, at least one copy of the Exchange Offer
Registration Statement and any post-effective amendment thereto, including
all material incorporated by reference therein, and, if the Exchanging
Dealer so requests in writing, all exhibits thereto (including exhibits
incorporated by reference therein).
(h) The Company shall promptly deliver to each Initial Purchaser, each
Exchanging Dealer which so requests, and each other Person required to
deliver a Prospectus during the Exchange Offer Registration Period, without
charge, as many copies of the Prospectus included in such Exchange Offer
Registration Statement and any amendment or supplement thereto as any such
Person may reasonably request. The Company consents to the use of the
Prospectus or any amendment or supplement thereto by any Initial Purchaser,
any Exchanging Dealer and any such other Person that may be required to
deliver a prospectus following the Registered Exchange Offer in connection
with the offering and sale of the New Securities covered by the Prospectus,
or any amendment or supplement thereto, included in the Exchange Offer
Registration Statement.
(i) Prior to the Registered Exchange Offer or any other offering of
Transfer Restricted Securities or New Securities, as applicable, pursuant
to
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<PAGE>
any Registration Statement, the Company shall arrange, if necessary, for
the qualification of the Transfer Restricted Securities or the New
Securities for sale under the securities or blue sky laws of such
jurisdictions as any Holder shall reasonably request in writing and will
maintain such qualification in effect so long may be required and do any
and all other acts or things necessary or advisable to enable the offer
and sale in such jurisdictions of the securities covered by the
Registration Statement; provided that in no event shall the Company be
obligated to qualify to do business in any jurisdiction where it is not
then so qualified or to take any action that would subject it to service of
process in suits, other than those arising out of the Initial Placement,
the Registered Exchange Offer or any offering pursuant to a Shelf
Registration Statement, in any such jurisdiction where it is not then so
subject; and provided, further, that where New Securities are held by an
Exchanging Dealer, or Securities or New Securities are offered pursuant to
an underwritten offering, counsel to the Initial Purchasers shall, at the
cost and expense of the Company, perform the blue-sky investigations and
file the registration and qualifications required to be filed pursuant to
this provision.
(j) The Company shall cooperate with the Holders of Securities to
facilitate the timely preparation and delivery of certificates representing
New Securities or Securities to be issued or sold pursuant to any
Registration Statement free of any restrictive legends and in such
denominations and registered in such names as Holders may request.
(k) Upon the occurrence of any event contemplated by subsections (c)
(ii) through (v) above during the period for which the Company is required
to maintain an effective Registration Statement, the Company shall promptly
prepare a post-effective amendment to the applicable Registration Statement
or an amendment or supplement to the related Prospectus or file any other
required document so that, as thereafter delivered to Initial Purchasers
of the securities included therein, the Prospectus will not include an
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. In such circumstances, the
period of effectiveness of the Exchange Offer Registration Statement
provided for in Section 2 and the Shelf Registration Statement provided for
in Section 3 (b) shall each be extended by the number of days from and
including the date of the giving of a notice of suspension pursuant to
Section 4(c) to and including the date when the Initial Purchasers, the
Holders of the Securities and any
14
<PAGE>
known Exchanging Dealer shall have received such amended or supplemented
Prospectus pursuant to this Section.
(l) Not later than the effective date of any Shelf Registration
Statement and the expiration date of the Registered Exchange Offer under an
Exchange Offer Registration Statement, the Company shall provide a CUSIP
number for the Transfer Restricted Securities or the New Securities, as the
case may be, registered under such Registration Statement and shall,
promptly thereafter provide the Trustee with certificates for such
Securities or New Securities, in a form eligible for deposit with The
Depository Trust Company.
(m) The Company shall comply with all applicable rules and regulations
of the Commission and shall make generally available to its security
holders as soon as practicable after the effective date of the applicable
Registration Statement an earnings statement satisfying the provisions of
Section 11 (a) of the Act and Rule 158 thereunder, to the extent and so
long as they are applicable to the Registration Statement.
(n) The Company shall cause the Indenture or to be qualified under the
Trust Indenture Act, as required by applicable law, in a timely manner.
(o) The Company may require each Holder of Transfer Restricted
Securities or New Securities, as applicable, to be sold pursuant to any
Shelf Registration Statement to furnish to the Company such information
regarding the Holder and the distribution of such securities as the Company
may from time to time reasonably require for inclusion in such Registration
Statement. The Company may exclude from such Shelf Registration Statement
the Transfer Restricted Securities or New Securities, as applicable, of any
Holder that unreasonably fails to furnish such information within a
reasonable time after receiving such request.
(p) In the case of any Shelf Registration Statement, the Company shall
enter into such agreements and take all other appropriate actions
(including if requested an underwriting agreement in customary form) in
order to expedite or facilitate the registration or the disposition of the
Securities, and in connection therewith, 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 7 (or such
other
15
<PAGE>
provisions and procedures acceptable to the Majority Holders and the
Managing Underwriters, if any), with respect to all parties to be
indemnified pursuant to Section 6.
(q) The Company shall, if requested, promptly incorporate in a
Prospectus supplement or post-effective amendment to a Shelf Registration
Statement, such information as the Managing Underwriters and Majority
Holders reasonably agree should be included therein and shall make all
required filings of such Prospectus supplement or post-effective amendment
as soon as is reasonably practicable after receipt of notice of the matter
to be incorporated in such Prospectus supplement or post effective
amendment.
(r) In the case of any Shelf Registration Statement, the Company
shall:
(i) make reasonably available for inspection by the Holders of
Transfer Restricted Securities or New Securities, as applicable, to be
registered thereunder, any underwriter participating in any
disposition pursuant to such Shelf Registration Statement, and any
attorney, accountant or other agent retained by the Holders or any
such under writer, all relevant financial and other records, pertinent
corporate documents and properties of the Company and its
subsidiaries;
(ii) cause the Company's officers, directors and employees to
supply all relevant information reasonably requested by the Holders or
any such underwriter, attorney, accountant or agent in connection with
any such Registration Statement as is customary for similar due
diligence examinations; provided, however that any information that is
designated in writing by the Company, in good faith, as confidential
at the time of delivery of such information shall be kept confidential
by the Holders or any such underwriter, attorney, accountant or agent,
unless such disclosure is made in connection with a court proceeding
or required by law, or such information becomes available to the
public generally or through a third party without an accompanying
obligation of confidentiality and the foregoing inspection and
information gathering shall be coordinated on behalf of the Initial
Purchasers by you and on behalf of the other parties, by one firm of
counsel (the "Designated Counsel") designated by the Majority Holders;
16
<PAGE>
(iii) make such representations and warranties to the Holders of
Securities registered thereunder and the underwriters, if any, in
form, substance and scope as are customarily made by issuers to
underwriters in primary underwritten offerings and covering matters
including, but not limited to, those set forth in the Purchase
Agreement;
(iv) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance)
shall be reasonably satisfactory to the Managing Underwriters, if any)
addressed to each selling Holder and the underwriters, if any,
covering such matters as are customarily covered in opinions requested
in underwritten offerings and such other matters as may be reasonably
requested by such Holders and underwriters;
(v) obtain "cold comfort" letters and updates thereof from the
independent certified public accountants 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
selling Holder of Securities registered thereunder and the under-
writers, if any, in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with
primary underwritten offerings; and
(vi) deliver such documents and certificates as may be reasonably
requested by the Majority Holders and the Managing Underwriters, if
any, including those to evidence compliance with Section 4(k) and with
any customary conditions contained in the underwriting agreement or
other agreement entered into by the Company.
The actions set forth in clauses (iii), (iv), (v) and (vi) of this Section
shall be performed at (A) the effectiveness of such Registration Statement and
each post-effective amendment thereto; and (B) each closing under any
underwriting or similar agreement as and to the extent required thereunder.
17
<PAGE>
(s) In the case of any Exchange Offer Registration Statement, the
Company shall:
(i) make reasonably available for inspection by such Initial
Purchaser, and any attorney, accountant or other agent retained by
such Initial Purchaser, all relevant financial and other records,
pertinent corporate documents and properties of the Company and its
subsidiaries;
(ii) cause the Company's officers, directors and employees to
supply all relevant information reasonably requested by such Initial
Purchaser or any such attorney, accountant or agent in connection with
any such Registration Statement as is customary for similar due
diligence examinations; provided, however, that any information that
is designated in writing by the Company, in good faith, as
confidential at the time of delivery of such information shall be kept
confidential by such Initial Purchaser or any such attorney,
accountant or agent, unless such disclosure is made in connection with
a court proceeding or required by law, or such information becomes
available to the public generally or through a third party without an
accompanying obligation of confidentiality and the foregoing
inspection and information gathering shall be coordinated on behalf
of the Initial Purchasers by you and on behalf of the other parties,
by Designated Counsel;
(iii) make such representations and warranties to such Initial
Purchaser, in form, substance and scope as are customarily made by
issuers to underwriters in primary underwritten offerings and covering
matters including, but not limited to, those set forth in the Purchase
Agreement;
(iv) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance)
shall be reasonably satisfactory to such Initial Purchaser and its
counsel, addressed to such initial Purchaser, covering such matters as
are customarily covered in opinions requested in underwritten
offerings and such other matters as may be reasonably requested by
such Initial Purchaser or its counsel;
18
<PAGE>
(v) obtain "cold comfort" letters and updates thereof from the
independent certified public accountants 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 such
Initial Purchaser, in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with
primary underwritten offerings, or if requested by such Initial
Purchaser or its counsel in lieu of a "cold comfort" letter, an
agreed-upon procedures letter under Statement on Auditing Standards
No. 35, covering matters requested by such Initial Purchaser or its
counsel; and
(vi) deliver such documents and certificates as may be reasonably
requested by such Initial Purchaser or its counsel, including those to
evidence compliance with Section 4(k) and with conditions customarily
contained in underwriting agreements.
The foregoing actions set forth in clauses (iii), (iv), (v), and (vi) of
this Section shall be performed at the close of the Registered Exchange Offer
and the effective date of any post-effective amendment to the Exchange Offer
Registration Statement.
(t) In the case of a Shelf Registration Statement, each Holder of
Transfer Restricted Securities or New Securities, as applicable, to be
registered pursuant thereto agrees by acquisition of such Transfer
Restricted Securities or New Securities, as the case may be, that, upon the
occurrence of any event contemplated by subsections (c)(ii) through (v)
above during the period for which the Company is required to maintain
effective the Shelf Registration Statement, such Holder will, upon notice
thereof from the Company, discontinue disposition of such Transfer
Restricted Securities or New Securities, as applicable, until such Holder's
receipt of copies of the supplemental or amended prospectus contemplated in
subsection (k) above, or until advised in writing by the Company that the
use of the applicable Prospectus may be resumed.
(u) If a Registered Exchange Offer is to be consummated, upon delivery
of the Transfer Restricted Securities by Holders to the Company (or to such
other Person as directed by the Company) in exchange for the New
19
<PAGE>
Securities, the Company shall mark, or caused to be marked, on the
Securities so exchanged that such Securities are being canceled in exchange
for the New Securities. In no event shall the Securities be marked as paid
or otherwise satisfied.
(v) The Company will use its reasonable best efforts (i) if the
Securities have been rated prior to the initial sale of such Securities, to
confirm such ratings will apply to the Transfer Restricted Securities or
the New Securities, as the case may be, covered by a Registration
Statement; or (ii) if the Transfer Restricted Securities were not
previously rated, to cause the Transfer Restricted Securities covered by a
Registration Statement to be rated with at least one nationally recognized
statistical rating agency, if so requested by Majority Holders with respect
to the related Registration Statement or by any Managing Underwriters.
(w) In the event that any Broker-Dealer shall underwrite any
Securities or participate as a member of an underwriting syndicate or
selling group or "assist in the distribution" (within the meaning of the
Rules of Fair Practice and the By-Laws of the National Association of
Securities Dealers, Inc.) thereof, whether as a Holder of such Securities
or as an underwriter, a placement or sales agent or a broker or dealer in
respect thereof, or otherwise, assist such Broker-Dealer in complying with
the requirements of such Rules and By-Laws, including, without limitation,
by:
(i) if such Rules or By-Laws shall so require, engaging a
"qualified independent underwriter" (as defined in such Rules) to
participate in the preparation of the Registration Statement, to
exercise usual standards of due diligence with respect thereto and, if
any portion of the offering contemplated by such Registration
Statement is an underwritten offering or is made through a placement
or sales agent, to recommend the yield of such Securities;
(ii) indemnifying any such qualified independent underwriter to
the extent of the indemnification of underwriters provided in Section
6 hereof; and
(iii) providing such information to such Broker-Dealer as may be
required in order for such Broker-Dealer to comply with the
requirements of such Rules.
20
<PAGE>
(x) The Company shall use its reasonable best efforts to take
all other steps necessary to effect the registration of the Transfer
Restricted Securities or the New Securities, as the case may be,
covered by a Registration Statement.
5. Registration Expenses. The Company shall bear all expenses incurred in
connection with the performance of its obligations under Sections 2, 3 and 4
hereof and, in the case of any Shelf Registration Statement, will reimburse the
Holders for the reasonable fees and disbursements of the Designated Counsel,
and, in the case of any Exchange Offer Registration Statement, will reimburse
the Initial Purchasers for the reasonable fees and disbursements of one counsel
or the Designated Counsel, if any, acting in connection therewith.
6. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each Holder of
Securities or New Securities, as the case may be, covered by any
Registration Statement (including each Initial Purchaser and, with respect
to any Prospectus delivery as contemplated in Section 4(h) hereof, each
Exchanging Dealer), the directors, officers, employees and agents of each
such Holder and each Person who controls any such Holder within the meaning
of either the Act or the Exchange Act, against any and all losses, claims,
damages or liabilities, joint or several, to which they or any of them may
become subject under the Act, the Exchange Act or other Federal or state
statutory law or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities (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 Registration Statement as
originally filed or in any amendment thereof, or in any preliminary
Prospectus or the Prospectus, 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 not misleading, and agrees to reimburse each
such indemnified party, as incurred, for any legal or other expenses
reasonably incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that
the Company will not be liable in any case to the extent that any such
loss, claim, damage or liability arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information furnished to the Company by or on
21
<PAGE>
behalf of any such Holder specifically for inclusion therein. This
indemnity agreement will be in addition to any liability which the Company
may otherwise have.
The Company also agrees to indemnify or contribute as provided in Section
6(d) to Losses of each underwriter of Securities or New Securities, as the case
may be, registered under a Shelf Registration Statement, their directors,
officers, employees or agents and each Person who controls such underwriter on
substantially the same basis as that of the indemnification of the Initial
Purchasers and the selling Holders provided in this Section 6(a) and shall, if
requested by any Holder, enter into an underwriting agreement reflecting such
agreement, as provided in Section 4(p) hereof.
(b) Each Holder of Securities or New Securities, as the case may be,
covered by any Registration Statement (including each Initial Purchaser
and, with respect to any Prospectus delivery as contemplated in Section
4(h) hereof, each Exchanging Dealer) severally agrees to indemnify and hold
harmless (i) the Company (ii) each of its directors (iii) each of its
officers, directors, employers and agents and (iv) each Person who controls
the Company within the meaning of either the Act or the Exchange Act, to
the same extent as the foregoing indemnity from the Company to each such
Holder, but only with reference to written information relating to such
Holder furnished to the Company by or on behalf of such Holder specifically
for inclusion in the documents referred to in the foregoing indemnity. This
indemnity agreement will be in addition to any liability which any such
Holder may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
6 of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying party
under this Section, notify the indemnifying party in writing of the
commencement thereof, but the failure so to notify the indemnifying party
(i) will not relieve it from liability under paragraph (a) or (b) above
unless and to the extent it did not otherwise learn of such action and such
failure results in the forfeiture by the indemnifying party of substantial
rights and defenses as determined by a court of competent jurisdiction; and
(ii) will not, in any event, relieve the indemnifying party from any
obligations to any indemnified party other than the indemnification
obligation provided in paragraph (a) or (b) above. The indemnifying party
shall be entitled to assume the defense of such action and appoint counsel
of the indemnifying
22
<PAGE>
party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in
which case the indemnifying party shall not thereafter be responsible for
the fees and expenses of any separate counsel retained by the indemnified
party or parties except as set forth below); provided, however, that such
counsel shall be reasonably satisfactory to the indemnified party.
Notwithstanding the indemnifying party's election to assume the defense of
such action or appoint counsel to represent the indemnified party in an
action, the indemnified party shall have the right to employ separate
counsel (including local counsel), and the indemnifying party shall bear
the reasonable fees, costs and expenses of such separate counsel if (i) the
use of counsel chosen by the indemnifying party to represent the
indemnified party would present such counsel with a conflict of interest,
which has not been waived; (ii) the actual or potential defendants in, or
targets of, any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have been reasonably
advised by such counsel that there are legal defenses available to it
and/or other indemnified parties which are different from or additional to
those available to the indemnifying party; (iii) the indemnifying party
shall not have assumed the defense of the action or employed counsel
reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of the institution
of such action; or (iv) the indemnifying party shall authorize the
indemnified party to employ separate counsel at the expense of the
indemnifying party. In any such case, the indemnifying party shall not, in
connection with any one action or separate but substantially similar
related actions 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 (in addition to any local counsel) for
all indemnified parties. An indemnifying party will not, without the prior
written consent of the indemnified parties, settle or compromise or consent
to the entry of any judgment with respect to any pending or threatened
claim, action, suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified
parties are actual or potential parties to such claim or action) unless
such settlement, compromise or consent includes an unconditional release of
each indemnified party from all liability arising out of such claim,
action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 6 is unavailable to or insufficient to hold harmless an
indemnified party for any losses, claims, damages or liabilities referred
to
23
<PAGE>
herein, then each applicable indemnifying party shall have a joint
and several obligation to contribute to the aggregate losses, claims,
damages and liabilities (including legal or other expenses reasonably
incurred in connection with investigating or defending same)
(collectively "Losses") to which such indemnified party may be
subject in such proportion as is appropriate to reflect the relative
benefits received by such indemnifying party, on the one hand, and
such indemnified party, on the other hand, from the Initial Placement
and the Registration Statement which resulted in such Losses;
provided, however, that in no case shall any Initial Purchaser or any
subsequent Holder of any Security or New Security be responsible, in
the aggregate, for any amount in excess of the purchase discount or
commission applicable to such Security, or in the case of a New
Security, applicable to the Security that was exchange able into such
New Security, as set forth on the cover page of the Final Memorandum,
nor shall any underwriter be responsible for any amount in excess of
the underwriting discount or commission applicable to the securities
purchased by such underwriter under the Registration Statement which
resulted in such Losses. If the allocation provided by the immediately
preceding sentence is unavailable for any reason, the indemnifying
party and the indemnified party shall contribute in such proportion as
is appropriate to reflect not only such relative benefits but also the
relative fault of such indemnifying party, on the one hand, and such
indemnified party, on the other hand, in connection with the
statements or omissions or alleged statements or omissions which
resulted in such Losses as well as any other relevant equitable
considerations. Benefits received by any underwriter shall be deemed
to be equal to the total underwriting discounts and commissions, as
set forth on the cover page of the Prospectus forming a part of the
Registration Statement which resulted in such Losses. Relative fault
shall be determined by reference to, among other things, whether any
untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information
provided by the indemnifying party, on the one hand, or by the
indemnified party, on the other hand, the intent of the parties and
their relative knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission or alleged untrue
statement or omission. The parties agree that it would not be just and
equitable if contribution were determined by pro rata allocation (even
if the Holders were treated as one entity for such purpose) or any
other method of allocation which does not take account of the
equitable considerations referred to above. Notwithstanding the
provisions of this paragraph (d), no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11 (f) of the Act)
shall be entitled to contribution from
24
<PAGE>
any Person who was not guilty of such fraudulent misrepresentation. For
purposes of this Section, each Person who controls a Holder within the
meaning of either the Act or the Exchange Act and each director, officer,
employee and agent of such Holder shall have the same rights to
contribution as such Holder, and each Person who controls the Company
within the meaning of either the Act or the Exchange Act, each officer,
director, employee or agent of the Company shall have the same rights to
contribution as the Company, subject in each case to the applicable terms
and conditions of this paragraph (d).
(e) The provisions of this Section 6 will remain in full force
and effect, regardless of any investigation made by or on behalf of
any Holder or the Company or any of the officers, directors or
controlling Persons referred to in this Section hereof, and will
survive the sale by a Holder of securities covered by a Registration
Statement.
7. Underwritten Registrations.
(a) If any of the Transfer Restricted Securities or New
Securities, as the case may be, covered by any Shelf Registration
Statement are to be sold in an underwritten offering, the Managing
Underwriters shall be selected by the Majority Holders, subject,
unless the Managing Underwriter is Salomon Smith Barney, to the
consent of the Company which shall not be unreasonably withheld.
(b) No Person may participate in any underwritten offering
pursuant to any Shelf Registration Statement, unless such Person (i)
agrees to sell such Person's Transfer Restricted Securities or New
Securities, as the case may be, on the basis reasonably provided in
any underwriting arrangements approved by the Persons entitled
hereunder to approve such arrangements; and (ii) completes and
executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under
the terms of such underwriting arrangements.
8. No Inconsistent Agreements. The Company has not, as of the date hereof,
entered into, nor shall it, on or after the date hereof, enter into, any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders herein or otherwise conflicts with the provisions hereof.
25
<PAGE>
9. Amendments and Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, qualified, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of the
Majority Holders; provided that, with respect to any matter that directly or
indirectly affects the rights of any Initial Purchaser hereunder, the Company
shall obtain the written consent of each such Initial Purchaser against which
such amendment, qualification, supplement, waiver or consent is to be effective.
Notwithstanding the foregoing (except the foregoing proviso), a waiver or
consent to departure from the provisions hereof with respect to a matter that
relates exclusively to the rights of Holders whose Securities or New Securities,
as the case may be, are being sold pursuant to a Registration Statement and that
does not directly or indirectly affect the rights of other Holders may be given
by the Majority Holders, determined on the basis of Securities or New
Securities, as the case may be, being sold rather than registered under such
Registration Statement.
10. Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand-delivery, first-class mail, telex,
telecopier or air courier guaranteeing overnight delivery:
(a) if to a Holder, at the most current address given by such holder
to the Company in accordance with the provisions of this Section, which
address initially is, with respect to each Holder, the address of such
Holder maintained by the Registrar under the Indenture, with a copy in like
manner to Salomon Smith Barney Inc.;
(b) if to you, initially at the respective addresses set forth in the
Purchase Agreement; and
(c) if to the Company, initially at its address set forth in the
Purchase Agreement with a copy to Paul, Weiss, Rifkind, Wharton & Garri
son, at 1285 Avenue of the Americas, New York, New York 10019, attention:
James M. Dubin, Esq.
All such notices and communications shall be deemed to have been duly given
when: at the time delivered by hand, if personally delivered; three business
days after being deposited in the mail, postage prepaid if mailed; when receipt
is acknowledged by sender's facsimile, if sent by facsimile transmission; and on
the day delivered if sent by overnight courier guaranteeing next day delivery.
26
<PAGE>
The Initial Purchasers or the Company by notice to the other parties may
designate additional or different addresses for subsequent notices or
communications.
11. Successors. This Agreement shall inure to the benefit of and be binding
upon the successors and assigns of each of the parties, including, without the
need for an express assignment or any consent by the Company thereto, subsequent
Holders of Securities and the New Securities. The Company hereby agrees to
extend the benefits of this Agreement to any Holder of Securities and the New
Securities, and any such Holder may specifically enforce the provisions of this
Agreement as if an original party hereto.
12. Counterparts. This agreement may be in signed counterparts, each of
which shall an original and all of which together shall constitute one and the
same agreement.
13. Headings. The headings used herein are for convenience only and shall
not affect the construction hereof.
14. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed in the State of New York.
15. Severability. In the event that any one of more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired or affected
thereby, it being intended that all of the rights and privileges of the parties
shall be enforceable to the fullest extent permitted by law.
16. Securities Held by the Company, etc.. Whenever the consent or approval
of Holders of a specified percentage of principal amount of Securities or New
Securities is required hereunder, Securities or New Securities, as applicable,
held by the Company or its Affiliates (other than subsequent Holders of
Securities or New Securities if such subsequent Holders are deemed to be
Affiliates solely by reason of their holdings of such Securities or New
Securities) shall not be counted in determining whether such consent or approval
was given by the Holders of such required percentage.
27
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us the enclosed duplicate hereof, whereupon this
letter and your acceptance shall represent a building agreement among the
Company and the several Initial Purchasers.
28
<PAGE>
Very truly yours,
METROMEDIA FIBER NETWORK, INC.
By: /s/ Howard M. Finkelstein
---------------------------------
Name: Howard M. Finkelstein
Title: President, Chief Operating Officer
and Director
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
SALOMON SMITH BARNEY INC.
CHASE SECURITIES INC.
DEUTSCHE BANK SECURITIES INC.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION.
By: SALOMON SMITH BARNEY INC.
By: /s/ Robert E. Doherty
------------------------------------
Name: Robert E. Doherty
Title: Vice President
For themselves and the Initial Purchasers.
<PAGE>
ANNEX A
Each Broker-Dealer that receives New Securities 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 Securities. 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 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
Securities received in ex change for Securities where such Securities were
acquired by such Broker-Dealer as a result of market-making activities or other
trading activities. The Company has agreed that starting on the Expiration Date
(as defined herein) and ending on the close of business 180 days after 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".
<PAGE>
ANNEX B
Each Broker-Dealer that receives New Securities for its own account in
exchange for Securities, where such Securities were acquired by such
Broker-Dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Securities. See "Plan of Distribution".
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
Each Broker-Dealer that receives New Securities 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 Securities. 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 Securities received in
exchange for Securities where such Securities were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, starting on the Expiration Date and ending on the close of business 180
days after the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any Broker-Dealer for use in connection with any
such resale. In addition, until_______, 199_, all dealers effecting transactions
in the New Securities may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New Securities
by brokers-dealers. New Securities received by Broker-Dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Securities 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 Securities. Any
Broker-Dealer that resells New Securities 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 Securities may be deemed to be an
"underwriter" within the meaning of the Act and any profit of any such resale of
New Securities and any commissions or concessions received by any such Persons
may be deemed to be underwriting compensation under the 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 Act.
For a period of 180 days after the Expiration Date, 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 pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holder of the Securities) other than commissions or concessions of any brokers
or dealers and will
<PAGE>
indemnify the holders of the Securities (including any Broker-Dealers) against
certain liabilities, including liabilities under the Act.
[If applicable, add information required by Regulation S-K Items 507 and/or
508.]
<PAGE>
ANNEX D
Rider A
CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
------------------------------------
Address:
---------------------------------
Rider B
If the undersigned is not a Broker-Dealer, the undersigned represents that
it is not an Affiliate of the Company, it acquired the New Securities in the
ordinary course of its business, it is not engaged in, and it has no
arrangements or understandings with any Person to participate in a distribution
of the New Securities, and is not participating in, and does not intend to
participate in the distribution of such New Securities. If the undersigned is a
Broker-Dealer that will receive New Securities for its own account in exchange
for Securities, it acknowledges that it represents that the Securities to be
exchanged for New Securities were acquired by it as a result of market-making
activities or other trading activities and acknowledges that it will deliver a
prospectus in connection with any resale of such New Securities; however, by so
acknowledging and by delivering a prospectus, the undersigned will not be deemed
to admit that it is an "underwriter" within the meaning of the Act.
<PAGE>
Exhibit 10.19
SECURITY AGREEMENT
This SECURITY AGREEMENT (this "Security Agreement") is made
and entered into as of November 25, 1998 by METROMEDIA FIBER NETWORK, INC., a
Delaware corporation (the "Pledgor"), IBJ SCHRODER BANK & TRUST COMPANY, a New
York banking corporation, having an office at One State Street Plaza, New York,
New York 10004, as trustee (in such capacity, the "Trustee") for the holders
from time to time (the "Holders") of the Notes (as defined herein) issued by the
Pledgor under the Indenture referred to below and IBJ SCHRODER BANK & TRUST
COMPANY, as securities intermediary (the "Securities Intermediary").
WITNESSETH
WHEREAS, the Pledgor and the Trustee have entered into that
certain Indenture dated as of the date hereof (as amended, restated,
supplemented or otherwise modified from time to time, the "Indenture"), pursuant
to which the Pledgor is issuing on the date hereof $650,000,000 in aggregate
principal amount of 10% Senior Notes due 2008 (and along with such notes that
may from time to time be issued in substitution therefor, the "Notes"); and
WHEREAS, the Pledgor has agreed, pursuant to the Indenture, to
(i) purchase or cause the purchase of Pledged Securities (as defined herein) in
an amount that will be sufficient upon receipt of scheduled interest and
principal payments in respect thereof to provide for the payment of the first
three scheduled interest payments due on the Notes and (ii) place such Pledged
Securities (or cause them to be replaced) in an account maintained by the
Trustee with the Securities Intermediary for the benefit of Holders of the
Notes; and
WHEREAS, the Pledgor has agreed to purchase and deliver to the
Trustee United States Treasury securities in an amount sufficient, in the
opinion of a nationally recognized firm of independent public accountants
selected by the Pledgor and delivered to the Trustee, upon receipt of scheduled
interest and principal payments of such securities, to provide for payment in
full of each of the first three scheduled interest payments due on the Notes and
interest on the Notes in the event that the Notes become due and payable prior
to such time as the first three scheduled interest payments thereon shall have
been paid in full ("Obligations"); and
<PAGE>
WHEREAS, the Pledgor has agreed to (i) grant to the Trustee
for its benefit and the ratable benefit of the Holders of the Notes a security
interest in the Pledged Securities and related collateral and (ii) execute and
deliver this Security Agreement in order to secure the payment and performance
by the Pledgor of all the Obligations; and
WHEREAS, the Trustee has opened an account (the "Security
Account") with the Securities Intermediary, at its office at One State Street,
New York, New York 10004, Account No. 600000071, in the name of the Pledgor,
with respect to which the Trustee is the sole entitlement holder and which is
under the sole dominion and control of the Trustee but subject to the terms of
this Security Agreement. Capitalized terms used herein and not otherwise defined
herein shall have the meanings given to such terms in the Indenture.
NOW, THEREFORE, in consideration of the mutual promises herein
contained and in order to induce the Holders of the Notes to purchase the Notes,
the Pledgor hereby agrees with the Trustee, for the benefit of the Trustee and
for the ratable benefit of the Holders of the Notes, as follows:
SECTION 1. Pledge and Grant of Security Interest. As security
for the prompt and complete payment and performance when due of the Obligations
(whether at the stated maturity or otherwise), the Pledgor hereby pledges to the
Trustee for its benefit and for the ratable benefit of the Holders of the Notes,
and grants to the Trustee for its benefit and for the ratable benefit of the
Holders of the Notes, a continuing first priority security interest in and to
all of the Pledgor's right, title and interest in, to and under the following
(wherever located), whether investment property, general intangibles, other
rights, interests, claims and remedies or proceeds or otherwise (collectively,
the "Pledged Collateral"): (a) the United States Treasury securities identified
by CUSIP Number in Exhibit A to this Security Agreement (the "Pledged
Securities"), (b) any and all applicable Security Entitlements to the Pledged
Securities, (c) the Security Account and all funds, certificates, instruments,
assets and properties, if any, from time to time carried therein or representing
or evidencing the Security Account, (d) any and all related accounts in which
Security Entitlements to the Pledged Securities are carried, and (e) all
proceeds of any and all of the Pledged Collateral (including, without
limitation, proceeds that constitute property of the types described in clauses
(a) - (d) of this Section 1).
SECTION 2. Security for Obligation. This Security Agreement
secures the prompt and complete payment and performance when due (whether at
stated maturity, by acceleration or otherwise) of all the Obligations.
2
<PAGE>
SECTION 3. Delivery of Pledged Securities; Security
Agreement; Interest. (a) The Pledged Securities shall be pledged and
transferred to the Trustee and the Trustee shall become the holder of a
Security Entitlement to the Pledged Securities through action by the
Securities Intermediary, as confirmed (in writing or electronically or
otherwise in accordance with standard industry practice) to the Trustee by
the Securities Intermediary either (i) indicating by book-entry that the
Pledged Securities and all Security Entitlements thereto has been credited to
the Security Account, or (ii) acquiring the Pledged Securities or a Security
Entitlement (as defined in Section 8-102(a)(8) of the Uniform Commercial Code
in effect in the State of New York (the "UCC")) thereto for the Trustee and
accepting the same for credit to the Security Account.
(b) Prior to or concurrently with the execution and delivery
hereof and prior to the transfer to the Trustee of the Pledged Securities (or
acquisition by the Trustee of any Security Entitlement thereto) as provided in
subsection (a) of this Section 3, the Trustee shall establish with the
Securities Intermediary the Security Account on the books of the Securities
Intermediary as a Securities Account segregated from all other custodial or
collateral accounts, such Security Account to be maintained at the offices of
the Securities Intermediary at One State Street, New York, NY 10004, and the
Securities Intermediary shall maintain a Securities Account at the Federal
Reserve Bank of New York ("FRBNY"). Upon transfer of the Pledged Securities to
the Securities Intermediary (or the Securities Intermediary's acquisition of the
Security Entitlements thereto), as confirmed to the Securities Intermediary by
FRBNY or another securities intermediary, the Securities Intermediary shall make
appropriate book entries indicating that the Pledged Securities and/or such
Security Entitlements have been credited to the Trustee and the Security
Account. Subject to the other terms and conditions of this Security Agreement,
all funds or other property held by the Trustee pursuant to this Security
Agreement shall be held in the Security Account subject (except as expressly
provided in Section 4(a), (b) and (c) hereof) to the exclusive dominion and
control (including "control" as defined in Section 9-115(l)(e) of the UCC) of
the Trustee and exclusively, for the benefit of the Trustee and for the ratable
benefit of the Holders of the Notes, and segregated from all other funds or
other property otherwise held by the Trustee.
(c) The Trustee shall, in accordance with all applicable laws,
have sole dominion and control (including "control" as defined in UCC Section
9-115(l)(e)) over the Security Account, and it shall be a term and condition of
the Security Account, and the Pledgor irrevocably instructs the Trustee,
notwithstanding any other term or condition to the contrary in any other
agreement, that no Pledged Collateral shall be
3
<PAGE>
released to or for the account of, or withdrawn by or for the account of, the
Pledgor or any other Person except as expressly provided in this Security
Agreement.
(d) The Trustee shall, in accordance with and subject to all
applicable laws, be the sole entitlement holder of, and have the sole power to
originate "Entitlement Orders" (as defined in UCC Section 8-102(a)(8)) with
respect to, the Security Account and all United States Treasury securities held
therein, and the Securities Intermediary does hereby agree that it will comply
with Entitlement Orders issued by the Trustee with respect to the Security
Account and all assets and properties from time to time carried in the Security
Account, including such securities, Security Entitlements and other "Financial
Assets" (as defined in UCC Section 8-102(a)(9)), without further consent of the
Pledgor or any other Person (except, to the extent required under the Indenture,
of the Holders), and that no Pledged Collateral shall be released to or for the
account of, or withdrawn by or for the account of, the Pledgor or any other
Person except as expressly provided in this Security Agreement.
(e) All Pledged Collateral shall be retained in the Security
Account pending disbursement pursuant to the terms hereof.
(f) Concurrently with the execution and delivery of this
Security Agreement the Trustee and the Securities Intermediary are delivering to
the Pledgor and to Salomon Smith Barney Inc., Chase Securities Inc., Deutsche
Bank Securities Inc. and Donaldson, Lufkin & Jenrette Securities Corporation as
the initial purchasers of the Notes, a duly executed certificate, in the form of
Exhibit B hereto, of each of an officer of the Trustee and the Securities
Intermediary, confirming the Trustee's establishment and maintenance of the
Security Account and the Security Intermediary's receipt and holding of the
Pledged Securities or a Security Entitlement thereto and the crediting of the
Pledged Securities or such Security Entitlement to the Security Account, all in
accordance with this Security Agreement.
(g) Concurrently with the execution and delivery of this
Security Agreement, the Pledgor shall deliver to the Trustee executed copies of
proper financing statements, duly filed under the UCC of the State of New York,
covering the Pledged Collateral described in this Security Agreement.
(h) Concurrently with the execution and delivery of this
Security Agreement, the Pledgor shall deliver to the Trustee an opinion of a
nationally recognized firm of independent public accountants, selected by the
Pledgor, substantially in the form of Exhibit C hereto.
4
<PAGE>
(i) The Security Account shall be governed by the law of the
State of New York.
SECTION 4. Disbursements. (a) At least three Business Days
prior to the due date of any of the first three scheduled interest payments
on the Notes, the Pledgor may, pursuant to written instructions given by the
Pledgor to the Trustee (a "Company Order"), direct the Trustee to release
from the Security Account and pay to the Holders of the Notes on behalf of
the Issuer proceeds sufficient to provide for payment in full of such
interest then due on the Notes. Upon receipt of a Company Order, the Trustee
will release such proceeds in accordance with the Company Order and the
payment provisions of the Indenture to the Holders of the Notes from (and to
the extent of) proceeds of the Pledged Securities in the Security Account.
Nothing in this Section 4 shall affect the Trustee's rights to apply the
Pledged Collateral to the payment of amounts due on the Notes upon
acceleration thereof.
(b) If the Pledgor makes any interest payment or portion of an
interest payment for which the Pledged Collateral is security from a source of
funds other than the Security Account ("Other Funds"), the Pledgor may, after
payment in full of such interest payment, direct the Trustee pursuant to a
Company Order to release to the Pledgor or to another party at the direction of
the Pledgor (the "Pledgor's Designee") proceeds from the Security Account in an
amount less than or equal to the amount of Other Funds applied to such interest
payment. Upon receipt by the Trustee of such Company Order and provided the
Holders of the Notes have received such interest payment, if no Default or Event
of Default (as defined in the Indenture) shall have occurred and be continuing,
the Trustee shall pay over to the Pledgor or the Pledgor's Designee, as the case
may be, the requested amount from proceeds in the Security Account as soon as
practicable (on the same Business Day if practicable). As a condition to any
release of funds to the Pledgor pursuant to this Section 4(b), the Pledgor shall
deliver to the Trustee a certificate signed by an officer of the Pledgor stating
that the Pledgor has made the interest payment from a source of funds other than
the Security Account, and that such release has been duly authorized by the
Pledgor and will not contravene any provision of applicable law or the
Certificate of Incorporation or the By-laws of the Pledgor or any material
agreement or other material instrument binding upon the Pledgor or any of its
subsidiaries or any judgment, order or decree of any governmental body, agency
or court having jurisdiction over the Pledgor or any of its subsidiaries or
result in the creation or imposition of any Lien on any assets of the Pledgor,
except for the security interest granted under the Security Agreement.
(c) If at any time the principal of and interest on the
Pledged Securities exceeds 100% of the amount sufficient, in the written opinion
of a
5
<PAGE>
nationally recognized firm of independent accountants selected by the Pledgor
and delivered to the Trustee, to provide for payment in full of the Obligations,
the Pledgor may direct the Trustee to release any such excess amount to the
Pledgor or to any Pledgor's Designee. Upon receipt of a Company Order (which
shall include a certificate from such nationally recognized firm of independent
accountants stating the amount by which the Pledged Securities exceed the amount
required to be held in the Security Account), if no Default or Event of Default
(as defined in the Indenture) shall have occurred and be continuing, the Trustee
shall pay over to the Pledgor or the Pledgor's Designee, as the case may be, any
such excess amount.
(d) Upon payment in full of the Obligations, or if the Company
shall become obligated under the Indenture to redeem all of the outstanding
Notes and such Notes shall have been redeemed, then, if no Default or Event of
Default (as defined in the Indenture) shall have occurred and be continuing, the
security interest in the Pledged Collateral evidenced by this Security Agreement
will automatically terminate and be of no further force and effect and the
Pledged Collateral shall promptly (on the same Business Day if practicable) be
paid over and transferred to the Pledgor as directed in writing by the Pledgor.
Furthermore, upon the release of any Pledged Collateral from the Security
Account in accordance with the terms of this Security Agreement, whether upon
release of Pledged Collateral to Holders as payment of interest or otherwise,
the security interest evidenced by this Security Agreement in such released
Pledged Collateral will automatically terminate and be of no further force and
effect.
(e) At least three Business Days prior to the due date of each
of the first three scheduled interest payments on the Notes, the Pledgor shall
give the Trustee notice (by Company Order) as to whether such interest payment
will be made pursuant to Section 4(a) or 4(b) and the respective amounts of
interest that will be paid from the Security Account and from Other Funds. Any
Other Funds to be used to make any interest payment shall be delivered to the
Trustee, in immediately available funds, prior to 12:00 p.m. (New York City
time) on such interest payment date. If no such notice is given or such Other
Funds have not been so delivered, the Trustee is hereby directed to act pursuant
to Section 4(a) as if it had received a Company Order pursuant thereto for the
payment in full of the interest then due from the Security Account.
(f) The Trustee shall sell the Pledged Collateral in the
Security Account (pursuant to written instructions from Pledgor) in order to
make any scheduled payment of interest unless there are sufficient funds in the
Security Account on such interest payment date.
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(g) Nothing contained in Section 1, Section 3, this Section 4,
Section 11 or any other provision of this Security Agreement shall (i) afford
the Pledgor any right to issue Entitlement Orders with respect to any Security
Entitlement to the Pledged Securities or any Securities Account in which any
such Security Entitlement may be carried, or otherwise afford the Pledgor rights
to of any such Security Entitlement or (ii) except as otherwise specified under
this Agreement (or required by applicable law) give rise to any other rights of
the Pledgor with respect to the Pledged Securities, any Security Entitlement
thereto or any Securities Account in which any such Security Entitlement may be
carried (except as expressly provided in Sections 4(a), (b) and (C) hereof) of
the Trustee in its capacity as such (and not as a securities intermediary).
SECTION 5. Representations and Warranties. The Pledgor hereby
represents and warrants that, as of the date hereof:
(a) The execution and delivery by the Pledgor of, and the
performance by the Pledgor of its obligations under, this Security Agreement
will not contravene any provision of applicable law or statute or the
organization documents of the Pledgor or any material agreement or other
material instrument binding upon the Pledgor or any of its subsidiaries or any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over the Pledgor or any of its subsidiaries, or result in the
creation or imposition of any Lien on any assets of the Pledgor, except for the
security interests granted under this Security Agreement; no consent, approval,
authorization or order of, or qualification with, or other action by, any
governmental or regulatory body or agency or any third party is required (i) for
the execution, delivery or performance by the Pledgor of this Security
Agreement, (ii) for the grant by the Pledgor of the security interest granted
hereby, (iii) except for the actions required pursuant to Section 3(b), for the
perfection and maintenance of the pledge and security interest created hereby
(including the first priority nature of such pledge and security interest,
assuming compliance by the Securities Intermediary with all obligations
contained in this Security Agreement, or (iv) except for any such consents,
approvals, authorizations or orders required to be obtained by the Trustee (or
the Holders) for reasons other than the consummation of this transaction, for
the exercise by the Trustee of the rights provided for in this Security
Agreement or the remedies in respect of the Pledged Collateral pursuant to this
Security Agreement.
(b) Immediately before depositing the Pledged Securities into
the Security Account, the Pledgor is the legal and beneficial owner of the
Pledged Collateral free and clear of any Lien or claims of any person or entity
(except for the security interests granted under this Security Agreement). No
financing statement or
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other instrument similar in effect covering the Pledgor's interest in the
Pledged Securities is on file in any public office, other than any financing
statements filed pursuant to this Security Agreement.
(c) This Security Agreement has been duly authorized, validly
executed and delivered by the Pledgor and assuming the due authorization,
execution and delivery thereof by the Trustee, constitutes a valid and binding
agreement of the Pledgor, enforceable against the Pledgor in accordance with its
terms, except as (i) may be limited by bankruptcy, insolvency, fraudulent
conveyance, preference, reorganization, moratorium or similar laws now or
hereafter in effect relating to or affecting creditors' rights or remedies
generally, (ii) the availability of equitable remedies may be limited by
equitable principles of general applicability, (iii) the exculpation provisions
and rights to indemnification hereunder may be limited by U.S. federal and state
securities laws and public policy considerations and (iv) the waiver of rights
and defenses contained in Section 11(b), Section 15.11 and Section 15.17 hereof
may be limited by applicable law.
(d) Upon the transfer to the Trustee of the Pledged Securities
and the acquisition by the Trustee of a Security Entitlement thereto in
accordance with Section 3, and the compliance by the Securities Intermediary
with the provisions of this Security Agreement, the pledge of and grant of a
security interest in the Pledged Collateral securing the payment of the
Obligations for the benefit of the Trustee and the Holders of the Notes will
constitute a valid first priority perfected security interest in such Pledged
Collateral, enforceable as such against all creditors of the Pledgor (and any
persons purporting to purchase any of the Pledged Collateral from the Pledgor),
and all filings and actions (other than the transfer to the Trustee of the
Pledged Securities) necessary or desirable to perfect and protect such security
interest have been duly taken.
(e) There are no legal or governmental proceedings pending or,
to the best of the Pledgor's knowledge, threatened to which the Pledgor or any
of its subsidiaries is a party or to which any of the properties of the Pledgor
or any such subsidiary is subject that would materially adversely affect the
power or ability of the Pledgor to perform its obligations under this Security
Agreement or to consummate the transactions contemplated hereby.
(f) The pledge of the Pledged Collateral pursuant to this
Security Agreement is not prohibited by law or governmental regulation
(including, without limitation, Regulations T, U and X of the Board of Governors
of the Federal Reserve System) applicable to the Pledgor.
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(g) No Event of Default (as defined herein) exists.
SECTION 6. Further Assurances. The Pledgor will, promptly upon
request by the Trustee, execute and deliver or cause to be executed and
delivered, or use its commercially reasonable efforts to procure, all
assignments, instruments and other documents, all in form and substance
reasonably satisfactory to the Trustee, any instruments to the Trustee and take
any other actions that are necessary or desirable, to perfect, continue the
perfection of, or protect the first priority of the Trustee's security interest
in and to the Pledged Collateral, to protect the Pledged Collateral against the
rights, claims, or interests of third persons (other than any such rights,
claims or interests created by or arising through the Trustee), to enable the
Trustee to enforce its rights and remedies hereunder, or to effect the purposes
of this Security Agreement. A photocopy or other reproduction of this Agreement
or any financing statement covering the Pledged Collateral or any part thereof
shall be sufficient as a financing statement where permitted by law. The Pledgor
will promptly pay all reasonable costs incurred in connection with any of the
foregoing. The Pledgor also agrees to take all actions that are necessary to
perfect or continue the perfection of, or to protect the first priority of, the
Trustee's security interest in and to the Pledged Collateral, including the
filing of all necessary financing and continuation statements, and to protect
the Pledged Collateral against the rights, claims or interests of third persons
(other than any such rights, claims or interests created by or arising through
the Trustee).
SECTION 7. Covenants. The Pledgor covenants and agrees with
the Trustee and the Holders of the Notes that from and after the date of this
Security Agreement until the payment in full in cash of the Obligations:
(a) that (i) it will not (and will not purport to) sell or
otherwise dispose of, or grant any option or warrant with respect to, any of the
Pledged Collateral or its beneficial interest therein, and (ii) it will not
create or permit to exist any Lien or other adverse interest in or with respect
to its beneficial interest in any of the Pledged Collateral (except for the
security interests granted under this Security Agreement) and at all times will
be the sole beneficial owner of the Pledged Collateral; and
(b) that it will not (i) enter into any agreement or
understanding that restricts or inhibits or purports to restrict or inhibit the
Trustee's rights or remedies hereunder, including, without limitation, the
Trustee's right to sell or otherwise dispose of the Pledged Collateral or (ii)
fail to pay or discharge any tax, assessment or levy of any nature with respect
to its beneficial interest in the Pledged
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Collateral not later than five days prior to the date of any proposed sale under
any judgment, writ or warrant of attachment with respect to such beneficial
interest.
SECTION 8. Power of Attorney. Upon the occurrence and
continuation of an Event of Default, in addition to all of the powers granted to
the Trustee pursuant to the Indenture, the Pledgor hereby appoints and
constitutes the Trustee as the Pledgor's attorney-in-fact, with full authority
in the place and stead of the Pledgor and in the name of the Pledgor or
otherwise, from time to time in the Trustee's discretion, to take any action and
to execute any instrument that the Trustee may deem necessary or advisable to
accomplish the purposes of this Security Agreement, including, without
limitation, the following powers: (a) collection of proceeds of any Pledged
Collateral; (b) conveyance of any item of Pledged Collateral to any purchaser
thereof; (c) giving of any notices or recording of any Liens under Section 6
hereof; and (d) paying or discharging taxes or Liens levied or placed upon the
Pledged Collateral, the legality or validity thereof and the amounts necessary
to discharge the same to be determined by the Trustee in its reasonable
discretion, and such payments made by the Trustee to become part of the
Obligations of the Pledgor to the Trustee, due and payable immediately upon
demand. The Trustee's authority under this Section 8 shall include, without
limitation, the authority to endorse and negotiate any checks or instruments
representing proceeds of Pledged Collateral in the name of the Pledgor, execute
and give receipt for any certificate of ownership or any document constituting
Pledged Collateral, transfer title to any item of Pledged Collateral, sign the
Pledgor's name on all financing statements (to the extent permitted by
applicable law) or any other documents deemed necessary or appropriate by the
Trustee to preserve, protect or perfect the security interest in the Pledged
Collateral and to file the same, prepare, file and sign the Pledgor's name on
any notice of Lien, and to take any other actions arising from or incident to
the powers granted to the Trustee in this Security Agreement. This power of
attorney is coupled with an interest and is irrevocable by the Pledgor.
Notwithstanding anything to the contrary stated herein, the Trustee has no duty
or obligation to exercise any of the powers stated in this Section 8.
SECTION 9. No Assumption of Duties; Reasonable Care. The
rights and powers granted to the Trustee hereunder are being granted in order to
preserve and protect the security interest of the Trustee and the Holders of the
Notes in and to the Pledged Collateral granted hereby and shall not be
interpreted to, and shall not impose any duties on the Trustee or the Securities
Intermediary in connection therewith, other than those expressly provided herein
or imposed under applicable law. Except as provided by applicable law or by the
Indenture, the Trustee shall be deemed to have exercised reasonable care in the
custody and preservation of the Pledged Collateral in its possession if the
Pledged Collateral is accorded treatment
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substantially equal to that which the Trustee accords similar property held by
the Trustee for similar accounts, it being understood that the Trustee in its
capacity as such shall not have any responsibility for (a) ascertaining or
taking action with respect to calls, conversions, exchanges, maturities or other
matters relative to any Pledged Collateral, whether or not the Trustee has or is
deemed to have knowledge of such matters or (b) investing or reinvesting any of
the Pledged Collateral or any loss on any investment.
SECTION 10. Indemnity. The Pledgor shall indemnify, hold
harmless and defend each of the Trustee and the Securities Intermediary and
their respective directors, officers, agents and employees from and against any
and all claims, actions, obligations, liabilities and expenses, including
reasonable defense costs, reasonable investigative fees and costs and reasonable
legal fees and expenses and damages arising from the Trustee's performance as
Trustee under this Security Agreement or from the Securities Intermediary's
performance as Securities Intermediary under this Security Agreement, except to
the extent that such claim, action, obligation, liability or expense is directly
attributable to the gross negligence or wilful misconduct of such indemnified
person.
SECTION 11. Remedies Upon Event of Default. If any Event of
Default, as defined in the Indenture (any such Event of Default being referred
to in this Security Agreement as an "Event of Default") shall have occurred and
be continuing:
(a) The Trustee and the Holders of the Notes shall have, in
addition to all other rights given by law or by this Security Agreement or the
Indenture, all of the rights and remedies with respect to the Pledged Collateral
of a secured party under the UCC. In addition, with respect to any Pledged
Collateral that shall then be in or shall thereafter come into the possession or
custody of the Trustee, the Trustee may, upon the direction of a majority in
aggregate principal amount of the Holders of the Notes sell or cause the same to
be sold at any broker's board or at public or private sale, in one or more sales
or lots, for cash or on credit or for future delivery, without assumption of any
credit risk. The purchaser of any or all Pledged Collateral so sold shall
thereafter hold the same absolutely, free from any claim, encumbrance or right
of any kind whatsoever created by or through the Pledgor. Unless any of the
Pledged Collateral threatens, in the reasonable judgment of the Trustee, to
decline speedily in value or is or becomes of a type sold on a recognized
market, the Trustee will give the Pledgor reasonable notice of the time and
place of any public sale thereof, or of the time after which any private sale or
other intended disposition is to be made. To the extent permitted by applicable
law, any sale of the Pledged Collateral conducted in conformity with reasonable
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commercial practices of banks, insurance companies, commercial finance
companies, or other financial institutions disposing of property similar to the
Pledged Collateral shall be deemed to be commercially reasonable. Any
requirements of reasonable notice shall be met if such notice is mailed to the
Pledgor as provided in Section 15.1 hereof at least 10 days before the time of
the sale or disposition. The Trustee or any Holder of Notes may, in its own name
or in the name of a designee or nominee, buy any of the Pledged Collateral at
any public sale and, if permitted by applicable law, at any private sale. All
expenses (including court costs and reasonable attorneys' fees, expenses and
disbursements) of, or incident to, the enforcement of any of the provisions
hereof shall be recoverable from the proceeds of the sale or other disposition
of the Pledged Collateral.
(b) The Pledgor further agrees to use its reasonable best
efforts to do or cause to be done all such other acts as may be necessary to
make such sale or sales of all or any portion of the Pledged Collateral pursuant
to this Section 11 valid and binding and in compliance with any and all other
applicable requirements of law. The Pledgor further agrees that a breach of any
of the covenants contained in this Section 11 will cause irreparable injury to
the Trustee and the Holders of the Notes, that the Trustee and the Holders of
the Notes have no adequate remedy at law in respect of such breach and, as a
consequence, that each and every covenant contained in this Section 11 shall be
specifically enforceable against the Pledgor, and the Pledgor hereby waives and
agrees not to assert any defenses against an action for specific performance of
such covenants except for a defense that no Event of Default has occurred.
(c) The Trustee may, without notice to the Pledgor except as
required by law and at any time or from time to time, charge, set-off and
otherwise apply all or any part of the Obligations against the Security Account
or any part thereof.
SECTION 12. Expenses. The Pledgor will upon demand pay to each
of the Trustee and the Securities Intermediary the amount of any and all
reasonable expenses, including, without limitation, the reasonable fees,
expenses and disbursements of its counsel, experts and agents retained by the
Trustee or the Securities Intermediary that the Trustee or the Securities
Intermediary may incur in connection with (a) the review, negotiation and
administration of this Security Agreement, (b) the custody or preservation of,
or the sale of, collection from, or other realization upon, any of the Pledged
Collateral, (c) the exercise or enforcement of any of the rights of the Trustee
and the Holders of the Notes hereunder or (d) the failure by the Pledgor to
perform or observe any of the provisions hereof.
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SECTION 13. Security Interest Absolute. All rights of the
Trustee and the Holders of the Notes and security interests hereunder, and all
obligations of the Pledgor hereunder, shall be absolute and unconditional under
all circumstances including but not limited to:
(a) any lack of validity or enforceability of the Indenture or
any other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Obligations, or any other amendment or
waiver of or any consent to any departure from the Indenture;
(c) any taking, exchange, surrender, release or non-perfection
of any other collateral or any taking, release or amendment or waiver from any
guaranty for all or any of the Obligations;
(d) any change, restructuring or termination of the corporate
structure or the existence of the Pledgor, or any of its subsidiaries; or
(e) to the extent permitted by applicable law, any other
circumstance which might otherwise constitute a defense available to, or a
discharge of, the Pledgor in respect of the Obligations or of this Security
Agreement.
SECTION 14. Securities Intermediary's Representations,
Warranties and Covenants. The Securities Intermediary represents and warrants
that it is as of the date hereof, and it agrees that for so long as it maintains
the Security Account and acts as securities intermediary pursuant to this
Security Agreement it shall be a "Securities Intermediary" (as defined in the
UCC and in 31 C.F.R. Section 357.2) and shall be eligible to maintain, and does
maintain, a Participant's Securities Account (as defined in 31 C.F.R. Section
357.2) in the name of the Securities Intermediary with the FRBNY (a "FRBNY
Member Securities Account"). In furtherance of the foregoing, the Securities
Intermediary hereby:
(a) represents and warrants that it is a corporation that in
the ordinary course of its business maintains Securities Accounts for others and
is acting in that capacity hereunder and with respect to the Security Account;
(b) represents and warrants that it maintains the FRBNY Member
Securities Account with the FRBNY and that the United Stated Treasury securities
constituting the Pledged Securities transferred to the Securities
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Intermediary pursuant to Section 3(b) have been credited to the FRBNY Member
Securities Account;
(c) agrees that the Security Account shall be an account to
which Financial Assets may be credited, and the Securities Intermediary
undertakes to treat the Trustee as the sole person entitled to exercise rights
that comprise (and entitled to the benefits of) such Financial Assets, and
entitled to exercise the rights of an entitlement holder and control in the
manner contemplated by the UCC, and further agrees to identify the Trustee in
the records of the Securities Intermediary as the sole person having a
Securities Entitlement against the Securities Intermediary with respect to the
Security Account and all Financial Assets credited thereto;
(d) hereby represents that it has not granted, and covenants
that so long as it acts as Securities Intermediary hereunder it shall not grant,
control (including without limitation, "control" as defined in UCC Section
9-115(l)(e)) over or with respect to any Pledged Collateral credited to the
Security Account from time to time to any other Person other than the Trustee;
(e) covenants that in its capacity as Securities Intermediary
hereunder and with respect to the Security Account, it shall not take any action
inconsistent with, and represents and covenants that it is not and so long as
this Security Agreement remains in effect will not become party to any
agreement, the terms of which are inconsistent with the provisions of this
Security Agreement;
(f) agrees, with the other parties to this Security Agreement,
that any item of property credited to the Security Account shall be treated as a
Financial Asset;
(g) agrees, with the other parties to this Security Agreement,
so long as it serves as Securities Intermediary pursuant to this Security
Agreement, to maintain the Security Account as a Securities Account and maintain
appropriate books and records in respect thereof in accordance with its usual
procedures and subject to the terms of this Security Agreement;
(h) agrees, with the other parties to this Security Agreement,
that the Securities Intermediary's jurisdiction, for purposes of UCC Section
8-110(e) and 31 C.F.R. 357.11(b) as it pertains to this Security Agreement, the
Security Account and Security Entitlements relating thereto, shall be the State
of New York.
SECTION 15. Miscellaneous Provisions.
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Section 15.1 Notices. Any notice or communication given
hereunder shall be sufficiently given if in writing and delivered in person or
mailed by first class mail, commercial courier service or telecopier
communication, addressed as follows:
if to the Pledgor:
Metromedia Fiber Network, Inc.
c/o Metromedia Company
One Meadowlands Plaza
East Rutherford, NJ 07076
Attention: General Counsel
Telecopier: 201-531-2803
with a copy to:
James M. Dubin
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Telecopier: 212-757-3990
if to the Trustee:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attention: Corporate Finance Trust Services
Telecopier: 212-858-2952
if to the Securities Intermediary:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attention: Corporate Finance Trust Services
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Telecopier: 212-858-2952
Section 15.2 No Adverse Interpretation of Other Agreements.
This Security Agreement may not be used to interpret another pledge, security or
debt agreement of the Pledgor or any subsidiary thereof. No such pledge,
security or debt agreement (other than the Indenture) may be used to interpret
this Security Agreement.
Section 15.3 Severability. The provisions of this Security
Agreement are severable, and if any clause or provision shall be held invalid,
illegal or unenforceable in whole or in part in any jurisdiction, then such
invalidity or unenforceability shall affect in that jurisdiction only such
clause or provision, or part thereof, and shall not in any manner affect such
clause or provision in any other jurisdiction or any other clause or provision
of this Security Agreement in any jurisdiction.
Section 15.4 Headings. The headings in this Security Agreement
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.
Section 15.5 Counterpart Originals. This Security Agreement
may be signed in two or more counterparts, each of which shall be deemed an
original, but all of which shall together constitute one and the same agreement.
Section 15.6 Benefits of Security Agreement. Nothing in this
Security Agreement, express or implied, shall give to any person, other than the
parties hereto and their successors hereunder, and the Holders of the Notes, any
benefit or any legal or equitable right, remedy or claim under this Security
Agreement.
Section 15.7 Amendments, Waivers and Consents. Any amendment
or waiver of any provision of this Security Agreement and any consent to any
departure by the Pledgor from any provision of this Security Agreement shall be
effective only if made or duly given in compliance with all of the terms and
provisions of the Indenture, and neither the Trustee nor any Holder of Notes
shall be deemed, by any act, delay, indulgence, omission or otherwise, to have
waived any right or remedy hereunder or to have acquiesced in any Default or
Event of Default (as defined herein) or in any breach of any of the terms and
conditions hereof. Consistent with the foregoing, this Security Agreement may be
amended, its provisions may be waived and departures from its provisions may be
consented to by action of the Pledgor and the Trustee, and (if applicable) the
Holders of the Notes, as
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provided in the Indenture, and no such amendment, waiver or consent shall
require any action or approval by the Initial Purchasers. Failure of the Trustee
or any Holder of Notes to exercise, or delay in exercising, any right, power or
privilege hereunder shall not preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. A waiver by the Trustee or
any Holder of Notes of any right or remedy hereunder on any one occasion shall
not be construed as a bar to any right or remedy that the Trustee or such Holder
of Notes would otherwise have on any future occasion. The rights and remedies
herein provided are cumulative, may be exercised singly or concurrently and are
not exclusive of any rights or remedies provided by law.
Section 15.8 Interpretation of Agreement. All terms not
defined herein or in the Indenture shall have the meaning set forth in the UCC,
except where the context otherwise requires. Acceptance of or acquiescence in a
course of performance rendered under this Security Agreement shall not be
relevant to determine the meaning of this Security Agreement even though the
accepting or acquiescing party had knowledge of the nature of the performance
and opportunity for objection.
Section 15.9 Continuing Security Interest; Termination. This
Security Agreement shall create a continuing security interest in and to the
Pledged Collateral and shall, unless otherwise provided in this Security
Agreement, remain in full force and effect until the payment in full in cash of
the Obligations. This Security Agreement shall be binding upon the Pledgor, its
transferees, successors and assigns, and shall inure, together with the rights
and remedies of the Trustee hereunder, to the benefit of the Trustee, the
Securities Intermediary, the Holders of the Notes and their respective
successors, transferees and assigns.
(a) This Security Agreement (other than the Pledgor's
obligations under Sections 10 and 12) shall terminate upon the payment in full
in cash of the Obligations or if the Company shall become obligated under the
Indenture to redeem all of the outstanding Notes and such Notes shall have been
redeemed, and if no Default or Event of Default (as defined in the Indenture)
shall have occurred and be continuing. At such time, the Trustee shall, pursuant
to a Company Order, and at the expense of the Pledgor, reassign and redeliver to
the Pledgor all of the Pledged Collateral hereunder that has not been sold,
disposed of, retained or applied by the Trustee in accordance with the terms of
this Security Agreement as directed in writing by the Pledgor and the Indenture
and take all actions that are necessary to release the security interest created
by this Security Agreement in and to the Pledged Collateral, including the
execution and delivery of all termination statements necessary to terminate any
financing or continuation statements filed with respect to
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the Pledged Collateral prepared and delivered to it by the Pledgor. Such
reassignment and redelivery shall be without warranty by or recourse to the
Trustee in its capacity as such, except as to the absence of any Liens on the
Pledged Collateral created by or arising through the Trustee, and shall be at
the reasonable expense of the Pledgor.
Section 15.10 Survival of Representations and Covenants. All
representations, warranties and covenants of the Pledgor contained herein shall
survive execution and delivery of this Security Agreement, and shall terminate
only upon the termination of this Security Agreement.
Section 15.11 Waivers. The Pledgor waives presentment and
demand for payment of any of the Obligations, protest and notice of dishonor or
default with respect to any of the Obligations, and all other notices to which
the Pledgor might otherwise be entitled, except as otherwise expressly provided
herein or in the Indenture.
Section 15.12 Authority of the Trustee and Securities
Intermediary. (a) Each of the Trustee and Securities Intermediary shall have
the right to exercise all powers hereunder that are specifically granted to
the Trustee or the Securities Intermediary by the terms hereof, together with
such powers as are reasonably incident hereto. The Trustee and the Securities
Intermediary may perform any of their respective duties hereunder or in
connection with the Pledged Collateral by or through agents or employees and
shall be entitled to retain counsel and to act in reliance upon the advice of
counsel concerning all such matters. Except as otherwise expressly provided
in this Security Agreement or the Indenture, neither the Trustee, the
Securities Intermediary, nor any director, officer, employee, attorney or
agent of the Trustee shall be liable to the Pledgor for any action taken or
omitted to be taken by the Trustee, in its capacity as Trustee or Securities
Intermediary, hereunder, except for its own gross negligence or willful
misconduct, and the Trustee and the Securities Intermediary shall not be
responsible for the validity, effectiveness or sufficiency hereof or of any
document or security furnished pursuant hereto. The Trustee, the Securities
Intermediary and their respective directors, officers, employees, attorneys
and agents may conclusively rely on any communication, instrument or document
believed by it or them to be genuine and correct and to have been signed or
sent by the proper person or persons.
(b) The Pledgor acknowledges that the rights and
responsibilities of the Trustee under this Security Agreement with respect to
any action taken by the Trustee or the exercise or non-exercise by the Trustee
of any option, right, request, judgment or other right or remedy provided for
herein or resulting or arising out of
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this Security Agreement shall, as between the Trustee and the Holders of the
Notes, be governed by the Indenture and by such other agreements with respect
thereto as may exist from time to time among them, but, as between the Trustee
and the Pledgor, the Trustee shall be conclusively presumed to be acting as
agent for the Holders of the Notes with full and valid authority so to act or
refrain from acting, and the Pledgor shall not be obligated or entitled to make
any inquiry respecting such authority.
(c) Each of the Trustee and the Securities Intermediary
undertakes to perform such duties and only such duties as are specifically set
forth in this Security Agreement, and no implied covenants or obligations shall
be read into this Security Agreement against the Trustee or the Securities
Intermediary.
(d) No provision of this Security Agreement shall require the
Trustee or the Securities Intermediary to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights and powers.
(e) The Trustee and the Securities Intermediary may consult
with counsel of its selection and the advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(f) The Trustee and the Securities Intermediary may execute
any of the trusts or powers hereunder or perform any duties hereunder either
directly or by or through agents or attorneys and the Trustee and the Securities
Intermediary shall not be responsible for any misconduct or negligence on the
part of any agent or attorney appointed with due care by it hereunder.
(g) The Trustee shall have no duty (i) to see to any
recording, filing or depositing of this Security Agreement or any financing
statements evidencing a security interest in the Pledged Collateral, or to see
to the maintenance of any such recording or filing, or (ii) to inspect the
Pledged Collateral at any time or to inquire as to the performance or observance
of any of the Pledgor's representations, warranties or covenants contained
herein.
Section 15.13 Removal or Resignation of the Securities
Intermediary. The Securities Intermediary may resign by notice to, or be removed
by notice from, the Trustee at any time; provided, however, that such
resignation shall not be effective until, and in the case of removal the
Securities Intermediary's duties hereunder shall not terminate until, a
successor Securities Intermediary shall have
19
<PAGE>
been appointed by the Trustee and accepted such appointment (by delivery of an
agreement substantially in the form hereof) and any and all assets held by the
retiring Securities Intermediary hereunder shall have been transferred to such
successor Securities Intermediary in accordance with the Trustee's instruction.
Section 15.14 Fees and Expenses. The Securities Intermediary
shall be entitled to charge such fees and charges, including but not limited to
transaction fees and reimbursement for costs, as from time to time may be in
accordance with its usual practice for maintenance and administration of
accounts of the type contemplated hereby (which charges and fees shall be paid
by the Trustee and shall be reimbursable to it pursuant to Section 7.07 of the
Indenture).
Section 15.15 Final Expression. This Security Agreement,
together with the Indenture and any other agreement executed in connection
herewith, is intended by the parties as a final expression of this Security
Agreement and is intended as a complete and exclusive statement of the terms and
conditions thereof.
Section 15.16 Rights of Holders of the Notes. No Holder of
Notes shall have any independent rights hereunder other than those rights
granted to individual Holders of the Notes pursuant to the Indenture; provided
that nothing in this subsection shall limit any rights granted to the Trustee
under the Notes or the Indenture.
Section 15.17 GOVERNING LAW; SUBMISSION TO JURISDICTION;
WAIVER OF JURY TRIAL; WAIVER OF DAMAGES. (a) THIS SECURITY AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK. ANY DISPUTE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL
TO, THE RELATIONSHIP ESTABLISHED BETWEEN THE PLEDGOR, THE TRUSTEE AND THE
HOLDERS OF THE NOTES IN CONNECTION WITH THIS SECURITY AGREEMENT AND WHETHER
ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
NOTWITHSTANDING THE FOREGOING, THE MATTERS IDENTIFIED IN 31 C.F.R. PART 357,
61 FED. REG. 43626 (AUG. 23, 1996) SHALL BE GOVERNED SOLELY BY THE LAWS
SPECIFIED THEREIN.
(b) THE PLEDGOR AGREES THAT THE TRUSTEE SHALL, IN ITS CAPACITY
AS TRUSTEE OR IN THE NAME AND ON BEHALF OF ANY HOLDER OF NOTES, HAVE THE RIGHT,
TO THE EXTENT PERMITTED BY
20
<PAGE>
APPLICABLE LAW, TO PROCEED AGAINST THE PLEDGOR OR THE PLEDGED COLLATERAL IN A
COURT IN ANY LOCATION REASONABLY SELECTED IN GOOD FAITH (AND HAVING PERSONAL OR
IN REM JURISDICTION OVER THE PLEDGOR OR THE PLEDGED COLLATERAL, AS THE CASE MAY
BE) TO ENABLE THE TRUSTEE TO REALIZE ON SUCH PLEDGED COLLATERAL, OR TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE TRUSTEE. THE PLEDGOR
AGREES THAT IT WILL NOT ASSERT ANY COUNTERCLAIMS, SET OFFS OR CROSSCLAIMS IN ANY
PROCEEDING BROUGHT BY THE TRUSTEE TO REALIZE ON SUCH PROPERTY OR TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE TRUSTEE, EXCEPT FOR SUCH
COUNTERCLAIMS, SET OFFS OR CROSSCLAIMS WHICH, IF NOT ASSERTED IN ANY SUCH
PROCEEDING, COULD NOT OTHERWISE BE BROUGHT OR ASSERTED. THE PLEDGOR WAIVES ANY
OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN THE CITY OF NEW YORK
ONCE THE TRUSTEE HAS COMMENCED A PROCEEDING DESCRIBED IN THIS PARAGRAPH
INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON
THE GROUNDS OF FORUM NON CONVENIENS.
(c) THE PLEDGOR AGREES THAT NEITHER ANY HOLDER OF NOTES NOR
(EXCEPT AS OTHERWISE PROVIDED IN THIS SECURITY AGREEMENT OR THE INDENTURE) THE
TRUSTEE IN ITS CAPACITY AS TRUSTEE SHALL HAVE ANY LIABILITY TO THE PLEDGOR
(WHETHER ARISING IN TORT, CONTRACT OR OTHERWISE) FOR LOSSES SUFFERED BY THE
PLEDGOR IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO, THE
TRANSACTIONS CONTEMPLATED AND THE RELATIONSHIP ESTABLISHED BY THIS SECURITY
AGREEMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH,
UNLESS IT IS DETERMINED BY A FINAL AND NONAPPEALABLE JUDGMENT OF A COURT THAT IS
BINDING ON THE TRUSTEE OR SUCH HOLDER OF NOTES, AS THE CASE MAY BE, THAT SUCH
LOSSES WERE THE RESULT OF ACTS OR OMISSIONS ON THE PART OF THE TRUSTEE OR SUCH
HOLDERS OF NOTES, AS THE CASE MAY BE, CONSTITUTING BAD FAITH, GROSS NEGLIGENCE
OR WILLFUL MISCONDUCT.
(d) TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PLEDGOR
WAIVES THE POSTING OF ANY BOND OTHERWISE REQUIRED OF THE TRUSTEE OR ANY HOLDER
OF NOTES IN CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO ENFORCE ANY
JUDGMENT OR OTHER COURT ORDER PERTAINING TO
21
<PAGE>
THIS SECURITY AGREEMENT OR ANY RELATED AGREEMENT OR DOCUMENT ENTERED IN FAVOR OF
THE TRUSTEE OR ANY HOLDER OF NOTES, OR TO ENFORCE BY SPECIFIC PERFORMANCE,
TEMPORARY RESTRAINING ORDER OR PRELIMINARY OR PERMANENT INJUNCTION, THIS
SECURITY AGREEMENT OR ANY RELATED AGREEMENT OR DOCUMENT BETWEEN THE PLEDGOR ON
THE ONE HAND AND THE TRUSTEE AND/OR THE HOLDERS OF THE NOTES ON THE OTHER HAND.
22
<PAGE>
IN WITNESS WHEREOF, the Pledgor, the Trustee and the
Securities Intermediary have each caused this Security Agreement to be duly
executed and delivered as of the date first above written.
Pledgor:
METROMEDIA FIBER
NETWORK, INC.
By: /s/ Howard M. Finkelstein
----------------------------------
Name: Howard M. Finkelstein
Title: President, Chief Operating
Officer and Director
Trustee:
IBJ SCHRODER BANK &
TRUST COMPANY,
as Trustee
By: /s/ Stephen J. Giurlando
----------------------------------
Name: Stephen J. Giurlando
Title: Assistant Vice President
IBJ SCHRODER BANK &
TRUST COMPANY,
as Securities Intermediary
By: /s/ Stephen J. Giurlando
----------------------------------
Name: Stephen J. Giurlando
Title: Assistant Vice President
<PAGE>
Exhibit A
The United States Treasury securities identified by CUSIP Numbers 912820A56,
912820AU1 and 912820AW7.
<PAGE>
CERTIFICATE
Pursuant to Section 3(f) of the Security Agreement (the
"Security Agreement") dated as of November 25, 1998 by and among Metromedia
Fiber Network, Inc. (the "Pledgor"), IBJ Schroder Bank & Trust Company, trustee
(the "Trustee") for the holders of the 10% Senior Notes due 2008 (the "Notes")
of the Pledgor, and IBJ Schroder Bank & Trust Company, as securities
intermediary (the "Securities Intermediary"), the undersigned officer of the
Trustee, on behalf of the Trustee, and the undersigned officer of the Securities
Intermediary, on behalf of the Securities Intermediary, make the following
certifications to the Pledgor and the initial purchasers of the Notes.
Capitalized terms used and not defined in this Certificate have the meanings set
forth or referred to in the Security Agreement.
1. Substantially contemporaneously with the execution and
delivery of this Certificate, the Trustee has established with the Securities
Intermediary, as Securities Intermediary, the Security Account. The Securities
Intermediary has acquired a Security Entitlement to the United States Treasury
securities identified in Annex I to this Certificate (the "Pledged Securities")
from the FRBNY and holds a Security Entitlement thereto in the FRBNY's Security
Account. The Securities Intermediary has made appropriate book entries in its
records establishing that the Pledged Securities and the Trustee's Securities
Entitlement thereto have been credited to and are held in the Security Account.
2. The Trustee has established and maintained and will
maintain the Security Account and all Securities Entitlements and other
positions carried in the Security Account solely in its capacity as Trustee and
has not asserted and will not assert any claim to or interest in the Security
Account or any such Securities Entitlements or other positions except in such
capacity.
3. The Trustee and the Securities Intermediary have acquired
their Security Entitlements to the Pledged Securities for value and without
notice of any adverse claim thereto. Without limiting the generality of the
foregoing, the Pledged Securities are not and the Securities Intermediary's and
the Trustee's Security Entitlements to the Pledged Securities are not, to their
knowledge, subject to any Lien granted by either of them in favor of any
Securities Intermediary (including, without limitation, the FRBNY) through which
the Trustee derives its Security Entitlement to the Pledged Securities.
<PAGE>
4. Neither the Securities Intermediary nor the Trustee has
caused or permitted the Pledged Securities or any Security Entitlement thereto
to become subject to any Lien created by or arising through either of the
Trustee or the Securities Intermediary.
<PAGE>
IN WITNESS WHEREOF, the undersigned officers have executed
this Certificate on behalf of IBJ Schroder Bank & Trust Company, Trustee, and on
behalf of the Securities Intermediary, respectively, this 25th day of November,
1998.
IBJ SCHRODER BANK &
TRUST COMPANY,
As Trustee
------------------------------------
Name:
Title:
IBJ SCHRODER BANK &
TRUST COMPANY,
As Securities Intermediary
------------------------------------
Name:
Title:
<PAGE>
Exhibit C
[To come]
<PAGE>
SUBSIDIARIES
Metromedia Fiber Network, Inc., a Delaware corporation
Metromedia Fiber Network Services, Inc., a Delaware corporation
MFN of VA, L.L.C., a Virginia limited liability company
Metromedia Fiber Network International, Inc., a Delaware
corporation
Metromedia Fiber Network NYC, Inc., a Delaware corporation
Metromedia Fiber Network of New Jersey, Inc., a New Jersey corporation
Metromedia Fiber Network of Illinois, Inc., a Delaware corporation
MFN Purchasing, Inc., a Delaware corporation
International Optical Network, L.L.C., a Delaware Corporation
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Summary
Consolidated Financial Data," "Selected Consolidated Financial Data" and
"Experts" and to the use of our report dated March 16, 1998 relating to the 1997
and 1996 financial statements of Metromedia Fiber Network, Inc. in the
Registration Statement (Form S-4) and related Prospectus for the registration of
$650,000,000 of its 10% Series B Senior Notes due 2008.
/s/ Ernst & Young LLP
Ernst & Young LLP
New York, New York
January 22, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data", "Summary Consolidated Financial Data" and
"Experts" and the use of our report dated June 26, 1996 relating to the 1995
consolidated financial statements of Metromedia Fiber Network, Inc. (formerly
National Fiber Network, Inc.) included in the Registration Statement (Form S-4)
and related Prospectus for the registration of its 10% Series B Senior Notes due
2008. Our report contains an explanatory paragraph regarding an uncertainty as
to the Company's ability to continue as a going concern.
/s/ M. R. Weiser & Co. LLP
M.R. Weiser & Co. LLP
New York, New York
January 22, 1999
<PAGE>
Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-----------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305 (b) (2)
IBJ WHITEHALL BANK & TRUST COMPANY
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
New York 13-5375195
(State of Incorporation (I.R.S. Employer
if not a U.S. national bank) Identification No.)
One State Street, New York, New York 10004
(Address of principal executive offices) (Zip code)
Stephen Giurlando, Assistant Vice President
IBJ Whitehall Bank & Trust Company
One State Street
New York, New York 10004
(212) 858-2000
(Name, Address and Telephone Number of Agent for Service)
METROMEDIA FIBER NETWORK, INC.
(Exact name of obligor as specified in its charter)
Delaware 11-3168327
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 North Lexington Avenue
White Plains, NY 10601
(Address of principal executive office) (Zip code)
10% SENIOR NOTES DUE 2008
(Title of Indenture Securities)
<PAGE>
Item 1. General information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
New York State Banking Department, Two Rector Street, New York, New York
Federal Deposit Insurance Corporation, Washington, D.C.
Federal Reserve Bank of New York Second District,
33 Liberty Street, New York, New York
(b) Whether it is authorized to exercise corporate trust powers.
Yes
Item 2. Affiliations with the Obligors.
If the obligors are an affiliate of the trustee, describe each such affiliation.
The obligors are not an affiliate of the trustee.
Item 13. Defaults by the Obligors.
(a) State whether there is or has been a default with respect to the securities
under this indenture. Explain the nature of any such default.
None
<PAGE>
(b) If the trustee is a trustee under another indenture under which any other
securities, or certificates of interest or participation in any other
securities, of the obligors are outstanding, or is trustee for more than
one outstanding series of securities under the indenture, state whether
there has been a default under any such indenture or series, identify the
indenture or series affected, and explain the nature of any such default.
None
List of exhibits.
List below all exhibits filed as part of this statement of eligibility.
*1. A copy of the Charter of IBJ Whitehall Bank & Trust Company as
amended to date. (See Exhibit 1A to Form T-1, Securities and Exchange
Commission File No. 22-18460).
*2. A copy of the Certificate of Authority of the trustee to Commence
Business (Included in Exhibit 1 above).
*3. A copy of the Authorization of the trustee to exercise corporate
trust powers, as amended to date (See Exhibit 4 to Form T-1, Securities and
Exchange Commission File No. 22-19146).
*4. A copy of the existing By-Laws of the trustee, as amended to date
(See Exhibit 4 to Form T-1, Securities and Exchange Commission File No.
22-19146).
5. Not Applicable
6. The consent of United States institutional trustee required by
Section 321(b) of the Act.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority.
* The Exhibits thus designated are incorporated herein by reference as
exhibits hereto. Following the description of such Exhibits is a reference
to the copy of the Exhibit heretofore filed with the Securities and
Exchange Commission, to which there have been no amendments or changes.
NOTE
In answering any item in this Statement of Eligibility which relates to matters
peculiarly within the knowledge of the obligors and its directors or officers,
the trustee has relied upon information furnished to it by the obligors.
Inasmuch as this Form T-1 is filed prior to the ascertainment by the trustee of
all facts on which to base responsive answers to Item 2, the answer to said Item
is based on incomplete information.
Item 2, may, however, be considered as correct unless amended by an amendment to
this Form T-1.
Pursuant to General Instruction B, the trustee has responded to Items 1, 2 and
16 of this form since to the best knowledge of the trustee as indicated in Item
13, the obligors are not in default under any indenture under which the
applicant is trustee.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, IBJ Whitehall Bank & Trust Company, a corporation organized and
existing under the laws of the State of New York, has duly caused this statement
of eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 4th day
of January, 1999.
IBJ WHITEHALL BANK & TRUST COMPANY
By: /s/ Stephen J. Giurlando
--------------------------------------
Stephen J. Giurlando
Assistant Vice President
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, IBJ Whitehall Bank & Trust Company, a corporation organized and
existing under the laws of the State of New York, has duly caused this statement
of eligibility & qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of New York, and State of New York,
on the 4th day of January, 1999.
IBJ WHITEHALL BANK & TRUST COMPANY
By: /s/ Stephen J. Giurlando
--------------------------------------
Stephen J. Giurlando
Assistant Vice President
<PAGE>
EXHIBIT 6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, as amended, in connection with the issue by Metromedia Fiber Network,
Inc., of it's 10% Senior Notes due 2008, we hereby consent that reports of
examinations by Federal, State, Territorial, or District authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
IBJ WHITEHALL BANK & TRUST COMPANY
By: /s/ Stephen J. Giurlando
--------------------------------------
Stephen J. Giurlando
Assistant Vice President
Dated: January 4, 1999
<PAGE>
EXHIBIT 6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, as amended, in connection with the issue by Metromedia Fiber Network,
Inc., of its 10% Senior Notes Due 2008, we hereby consent that reports of
examinations by Federal, State, Territorial, or District authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
IBJ WHITEHALL BANK & TRUST COMPANY
By: /s/ Stephen J. Giurlando
--------------------------------------
Stephen J. Giurlando
Assistant Vice President
Dated: January 4, 1999
<PAGE>
LETTER OF TRANSMITTAL
METROMEDIA FIBER NETWORK, INC.
OFFER TO EXCHANGE $650,000,000 OF ITS
10% SERIES B SENIOR NOTES DUE 2008
(THE "EXCHANGE NOTES")
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
FOR $650,000,000 OF ITS OUTSTANDING
10% SERIES A SENIOR NOTES DUE 2008
(THE "INITIAL NOTES")
PURSUANT TO THE PROSPECTUS, DATED , 1999
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1999 OR SUCH LATER DATE AND TIME TO WHICH THE EXCHANGE OFFER
MAY BE EXTENDED (THE "EXPIRATION DATE").
- --------------------------------------------------------------------------------
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS
IBJ WHITEHALL BANK & TRUST COMPANY
BY REGISTERED OR CERTIFIED MAIL:
IBJ Whitehall Bank & Trust Company
P.O. Box 84
Bowling Green Station
New York, NY 10274-004
BY HAND OR OVERNIGHT DELIVERY:
IBJ Whitehall Bank & Trust Company
One State Street
New York, NY 10004
BY FACSIMILE FOR ELIGIBLE INSTITUTIONS:
(212) 858-2952
Via Telex No: 177754
FOR CONFIRMATION AND/OR INFORMATION CALL:
(212) 858-2176
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX BELOW
--------------------------
List below the Initial Notes to which this Letter of Transmittal relates. If
the space provided below is inadequate, the certificate numbers and principal
amount of Initial Notes should be listed on a separate signed schedule affixed
hereto.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
DESCRIPTION OF INITIAL NOTES (1) (2) (3)
- ---------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
OF INITIAL NOTES
PRINCIPAL TENDERED
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE AMOUNT OF (IF LESS THAN
(PLEASE FILL IN, IF BLANK) NUMBER(S)* INITIAL NOTES ALL)**
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by book-entry holders.
** Unless otherwise indicated, the holder will be deemed to have tendered the
full aggregate principal amount represented by such Initial Notes.
- --------------------------------------------------------------------------------
